LONDON (Reuters) - Britain’s battered economy will not sink into recession for the third time in four years even if, as seems likely, the Bank of England refrains from providing stimulus via extra asset purchases, a Reuters poll showed.
The economy will expand a mere 0.2 percent in the current quarter, having contracted 0.3 percent in the final months of 2012, but thus missing a third recession, according to the poll of 55 economists taken in the past week.
The BoE marginally cut its own growth forecasts on Wednesday, but it said it stood ready to add to its quantitative easing programme if warranted.
The survey showed a median 35 percent chance of another recession in the next 12 months, similar to a poll taken last month, with none of the economists polled predicting a contraction in the current quarter and only six forecasting stagnation.
“We’ll miss it - narrowly,” said Ross Walker, UK economist at RBS. “The underlying picture is not really affected by it. Where it does matter is if you were to get a negative print then it can weigh on confidence, certainly from a business investment point of view.”
Talk of another slump has hit business and consumer confidence but Britain’s government has stuck with tough austerity measures designed to slash the public deficit. Wage rises failing to keep up with inflation have further dented optimism.
Finance Minister George Osborne has staked his reputation on strengthening Britain’s public finances and weak growth, or no growth, would hurt tax revenues. His plan has already been pushed two years off track.
With Britain teetering on the edge - pressured by a toxic mix of the government’s deficit-cutting drive, the struggling economy of its main trading partner, the euro zone, and with real wages falling - the International Monetary Fund and the opposition Labour party have called for Britain to rein in its austerity plan.
A Reuters poll also predicted the euro zone will claw its way out of recession but there is no prospect of a major upturn.
The employers’ association, the Confederation of British Industry, said on Wednesday the government needed to cut day-to-day spending more deeply in order to spur longer-term investment and get the economy growing more quickly.
The economy will likely expand 0.9 percent this year, down from 1.0 percent predicted a month ago, and 1.6 percent in 2014.
Britain’s central bank has so far pumped 375 billion pounds of new money into the economy to support growth. The poll did not expect them to restart their printing presses with a further bout of quantitative easing.
Economists in the survey gave a 43 percent chance of the programme, which was suspended in November, being restarted. That is marginally higher than the 40 percent likelihood given in a wider poll taken two weeks ago.
Canadian central bank chief Mark Carney, who takes the helm at the Bank of England in July, cooled expectations last week that he would push for sweeping changes in monetary policy when he assumes the top job.
As in all recent polls there was no change predicted to BoE interest rates, with medians from the 72 economists forecasting they would stay at their record low of 0.5 percent until July 2014 at least - the end of the forecasting horizon.
Only two banks see a hike across the six quarters polled, and they have both only pencilled in a 25 basis point hike between April and June 2014.
The BoE targets inflation at two percent but price pressures will not ease that far until July 2014 at least, according to the poll. Carney said this week that inflation targeting was still the best approach.
“With further deterioration of growth limited and sticky inflation remaining a problem, the BoE will likely hold back any further asset purchases,” wrote Julius Baer economists in a research note.