Poll - Economy to limp through 2013, no more QE

LONDON Thu Nov 15, 2012 5:16pm GMT

Governor of the Bank of England Mervyn King speaks at a business conference in London July 26, 2012. REUTERS/Alastair Grant/Pool

Governor of the Bank of England Mervyn King speaks at a business conference in London July 26, 2012.

Credit: Reuters/Alastair Grant/Pool

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LONDON (Reuters) - Britain's economy will barely grow in the current quarter and will expand only slightly more than 1 percent next year, half the expected rate of inflation, a Reuters poll showed on Thursday.

Rapidly-rising consumer prices, which are crimping spending power for Britons because they are going up faster than wages, also mean that the Bank of England has probably shelved its money-printing campaign at 375 billion pounds.

The latest Reuters consensus view, published a day after the central bank painted one of the most pessimistic economic forecasts since it was granted monetary independence in 1997, is little changed from one month ago.

Just 0.1 percent growth expected during September-December and 0.2 percent in the first three months of next year is the most downbeat outlook since Reuters began polling on these periods more than a year ago.

The central bank's outlook and the Reuters poll solidify the widespread perception among economists that the spurt of growth in the third quarter driven by the London 2012 Olympic Games was fleeting.

But after holding its quantitative easing government bond purchases programme steady this month, there is only a median 45 percent chance the Bank buys any more, the poll suggested.

"Never say never, but if there was no point in doing it this month why do it again in the next three months?" asked Alan Clarke, economist and bond strategist at Scotiabank, who puts less than a one-in-three chance of another round of QE.

Its decision to halt comes mainly because of the decision taken by the UK government, and agreed by the Bank, to transfer back to the government the interest the central bank had received on the bonds it has already bought.

That amount, 37 billion pounds, is a significant stimulus, roughly the size of annual UK public sector net borrowing before the financial crisis began.

As such it makes a major improvement to the UK government's fiscal position ahead of the autumn Budget statement.

Before this transfer of cash over to the government was announced, economists had been expecting another 50 billion worth of government bond purchases by the Bank.

INFLATION ON THE RISE

The latest Reuters poll also showed the highest consensus forecasts for inflation for the coming four quarters since polling began for these periods, with 2.4 percent for Q4, followed by 2.3, 2.4, and 2.3 percent.

The Bank, which targets inflation at 2.0 percent, is clearly feeling uncomfortable with the spot it finds itself in and made that public at a press conference on Wednesday.

"We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while," Bank Governor Mervyn King told journalists.

That is another reason for the Bank to stop buying bonds, which tends to be inflationary and in theory at least, ought to erode the value of the currency as it lifts the money supply.

A debate is now raging in Britain over how badly the government's fiscal austerity is damaging the economy, albeit less severely than in Greece or Spain, which are suffering swingeing tax rises, spending cuts and mass unemployment.

In the meantime, demand for UK exports from the euro zone, Britain's main trading partner, is also withering, in part because of austerity there.

That leaves little reason to hope for an export-driven rebound, no matter how weak the pound may be.

Indeed, Britain's economy is expected to grow at half the speed of another of its major trading partners, the United States.

(Polling and analysis by Ruby Cherian and Namrata Anchan. Editing by Jeremy Gaunt.)

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Comments (2)
DR9WX wrote:
So inflation is higher than growth. Let’s reason this through. Inflation is double that of growth. So prices are going up twice as fast as the economy is growing. A growing economy puts food on the table. A growing economy has business men investing in factories and services. It has consumers buying and spending. Good times all round. But, inflation is growing faster. Prices are going up twice as fast. This means less food on the table. Business men are not investing and consumers aren’t buying.

This means that the economy will slow. Oops.

All nonsense. What is happening is the productive worker is struggling to support the unproductive worker. Unfortunately unproductive workers are increasing in number. Government and Council employees are all unproductive as are retired people. I am not being mean, just stating the facts. Government and council workers merely spend the productive workers taxes. Retired and unemployed people merely spend the productive workers tax that the government takes.

What a mess the politicians have created. They are not worthy of our trust. However, if you want to blame someone just look in a mirror.

We can pretend things are fine for as long as we like. Things will therefore just deteriorate slowly. Then collapse completely and suddenly.

So, what can we expect?

A decade of the standard of living declining. A decade of slightly higher inflation than we expect despite attempts to reduce it. Low interest rates or high interest rates? It depends on what the banks/government decide. Toss a coin. They will. No real growth in the economy. Actually a decline. Ignore the official GDP numbers. Increasing unemployment and a shift from high paid full time jobs to low paid part time jobs. Retired people will go back to work. Youth unemployment will rocket.

Can anything be done? Not really. Human beings prefer to ignore a slow decline than have a real sudden change. The problem will occur when we get the slow decline and then the sudden change anyway.

Am I bothered? Not really, we cannot continue to consume more and more each year every year, forever. It isn’t sustainable. Anything that is unsustainable ends. Simple.

We need to change our attitudes. So after another ten years of decline, we have had four years so far, we may get a sudden shock when the global economy just collapses. This will focus the minds of those with them. Then we get the shift in attitude. Simple.

Sorry to be a party pooper but we have had centuries of growth. Pity human beings haven’t grown too. Not exactly our fault but we have allowed ourselves to become consumers. It was easy and it was fun, now who gets the bill?

Nov 15, 2012 6:52pm GMT  --  Report as abuse
mgb500 wrote:
To DR9WX

Perfect! I’ve tried to get this across to lots of folk – but no one wants to listen – most folk think that the party will continue for ever albeit with maybe fewer balloons & smaller lumps of ice cream. But sooner or later, the train will hit the buffers and that ice cream will make one almighty mess!

Nov 15, 2012 8:49pm GMT  --  Report as abuse
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