Forex News – UK economy grew in Q3 as forecast but expected to remain weak

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United Kingdom third quarter growth data released today show that revised GDP grew 0.5 percent which was in line with previous estimates. The pound got a brief boost but soon fizzled again as the data were not strong enough. Bank of England MPC member Ben Broadbent said on CNBC news that the UK is at risk of a recession and will probably have negative growth in the fourth quarter.
Britain’s economy faces a roughly 50 percent chance of contracting in the fourth quarter of the year, and could even slip into recession, Broadbent said.
“There’s clearly a risk of that,” he said when asked about the chances of a recession in a CNBC television interview. “The central forecast (for GDP growth) is around zero for Q4, so the chances of this being negative in that quarter are roughly one half,” he added.

After Broadbent’s comments the pound fell 50 pips against the dollar within minutes to 1.5515 from 1.5565.

A break down of the GDP data show that the expansion in Britain’s growth in the third quarter was mainly due to firms stocking up on inventories and also by government spending. From an economic perspective these do not provide foundations for a strong recovery. The sectors that add to growth are exports, consumption and investment, all of which were weak according to data.

The Bank of England has forecast that the economy will stagnate in the last three months of this year, and grow at an annual rate of just 0.7-0.8 percent through most of 2012.

The UK has been plagued by high unemployment , the highest in 17 years and a sluggish economy has put pressure on the Bank of England to introduce measures to stimulate the economy.

Last month the Bank of England restarted its quantitative easing programme, authorising another 75 billion pounds of gilt purchases. Speculation is growing that the central bank will endorse another round of easing by February. Such a measure will result in weakening the pound, since it involves increasing the supply of money on the system. Thus sterling is expected to remain weak.