In the third quarter of this year the UK economy posted stronger-than-expected growth and emerged from its double dip recession.
The optimistic began to celebrate, feeling that they were finally seeing the light at the end of the tunnel of economic woe. The pessimistic, on the other hand, warned that the positive expansion could be masking underlying weakness.
Unfortunately it now seems that the pessimistic were right.
The likelihood of the UK economy entering recession for the third time in recent years is increasing.
Earlier this week Bank of England Governor Mervyn King painted a wholly negative picture of the nation’s economic outlook. King stressed the ‘long and winding’ road to recovery the UK still has to travel and stated that restarting the currently halted quantitative-easing programme is a distinct possibility.
King’s comments caused the Pound to experience significant volatility but were backed by the results of a Bloomberg News survey.
Economists participating in the survey provided a median forecast for fourth quarter GDP, predicting a contraction of 0.1 per cent. They also put the likelihood of the economy plunging back into recession in 2013 at 33 per cent, up on the previously estimated 28 per cent.
If this should indeed come to pass Britain will be experiencing its first triple-dip recession on record.
The survey also revealed that the majority of economists expect that the UK economy will contract by 0.1 per cent this year and then expand by 1.1 per cent over the course of next year.
An economist with London-based Capital Economics Ltd assessed the situation in the following terms: ‘With business surveys and an external environment still weak, there’s a pretty high chance that GDP will fall back in the fourth quarter. It’s not our working assumption that there will be a contraction in the first quarter [of 2013] but if there was a proper triple dip, not caused by temporary factors, I think there’d be a high chance of more QE.’
As of 11:00 pm
The Pound to Euro exchange rate is currently trading at 1.2450
The Pound to US Dollar exchange rate is currently trading at 1.5852
The Pound to Australian Dollar exchange rate is currently trading at 1.5362
The Euro to US Dollar exchange rate is currently trading at 1.2732
The Euro to Pound exchange rate is currently trading at 0.8031
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