British Economy Seen Contracting 0.1% as Olympic Boost Unwinds

Jan. 19 (Bloomberg) -- The U.K. economy probably shrank in the fourth quarter as the boost from the London Olympic Games unwound, tipping the economy back toward a recession at the end of the year.

Gross domestic product dropped 0.1 percent from the third quarter, according to the median of 38 estimates in a Bloomberg News survey. The Office for National Statistics will publish the data on Jan. 25 in London.

The U.K. economy resumed expansion in the third quarter, though the recovery remains under pressure from government spending cuts and inflation that’s outpacing wage growth. While the Bank of England has halted its bond-purchase program, policy maker Ian McCafferty said yesterday that officials may need to look at new tools to spur growth.

“The U.K. may be heading for a triple-dip recession as inflation eats into household finances, export conditions remain tough and fiscal retrenchment weighs on the economy,” said Rob Wood, an economist at Berenberg Bank in London and a former Bank of England official. “We continue to expect further monetary stimulus in the second half of the year.”

The economy’s performance in the fourth quarter was also affected by maintenance shutdowns of oil and gas platforms in the North Sea. Estimates in the Bloomberg GDP survey ranged from a contraction of 0.5 percent to growth of 0.1 percent.

Forecasts

The National Institute of Economic and Social Research estimated last week that the economy shrank 0.3 percent in the fourth quarter. Markit Economics has said that its factory, services and construction surveys are consistent with the economy contracting by about 0.2 percent.

Markit also has said that the U.K. economy’s performance in the three months through March may be hindered by poor weather. London’s Heathrow airport canceled 347 flights yesterday and said others would be delayed as heavy snowfalls swept across southern Britain. The U.K. Met Office issued a “red” alert for Wales, warning that some areas might have as much as 30 centimeters (12 inches) of snow.

“The chances of a triple-dip recession are about 50-50,” Wood said. “A triple dip may hang on the degree of disruption from the expected snowfall.”

--With assistance from Mark Evans in London. Editors: Fergal O’Brien, Eddie Buckle