Unexpectedly weak performance of industry makes a ‘triple-dip’ recession look increasingly likely, analysts say
The pace of growth in Britain’s recession-scarred economy slowed sharply in the autumn, the National Institute of Economic and Social Research predicted on Tuesday, after official figures revealed a 1.7% drop in industrial output in September.
The thinktank’s latest forecast, published on Tuesday, showed GDP expanding by 0.5% in the three months to October – just half the speed of the 1% expansion in the three months to September that brought the double-dip recession to a close. NIESR expects it to be 2014 before output returns to the levels seen before the credit crrunch.
City analysts said the unexpectedly weak performance of industry, which makes up about 15% of the economy, made a “triple-dip” – with the Olympics bounce giving way to a renewed recession – look increasingly likely.
The Office for National Statistics said maintenance on North Sea oil platforms led to a 15.3% collapse in mining and quarrying output in September, contributing to the 1.7% fall in overall production. Manufacturing, which the government sees as key to reviving the economy, eked out a gain of just 0.1% on the month.
“UK factory output barely rose in September and energy production slumped, adding to evidence that the country risks sliding back into another downturn after the temporary growth surge enjoyed in the summer,” said Chris Williamson, chief economist at data provider Markit.
Bookmaker Paddy Power is offering odds of just 1-3 on GDP slipping back into the red in one of the next three quarters. A spokesman said: “With the Olympics bounce now over and activity in the service sector tumbling, it’s looking odds on the UK economy is, to use contemporary parliamentary parlance, toast.”
However, manufacturers’ group the EEF was keen to point out that a number of industries, including pharmaceuticals, transport and electrical equipment all saw production rise over the month.
“A modest uptick in output in September points to some growth still out there for manufacturers, despite some of the weaker survey data recently,” said the EEF’s chief economist, Lee Hopley.
She urged George Osborne to build on this cautious optimism by offering “a clear vision from government at the autumn statement about the priorities for our economy and a plan to ensure growth stays on track”. When official figures released last month showed the recession drawing to a close in the third quarter of 2012, the chancellor was careful to give the news a guarded welcome, stressing that growth could weaken again in coming months.
Howard Archer, of IHS Global Insight, said the worse-than-expected performance from industry might help tempt policymakers on the Bank of England’s monetary policy committee to extend its quantitative easing (QE) programme at their monthly meeting on Thursday.
“Signs that the economy is still struggling markedly despite the third-quarter GDP rebound keeps the door wide open to the Bank of England enacting more QE,” he said.
So far, the Bank has pumped £375bn of electronically created money into the economy to try and offset the impact of the credit drought from crisis-hit banks, and the lack of demand from markets in the eurozone.