LONDON: The end of the 2012 Olympics has left economists more uncertain than ever about the games’ boost to Britain’s economy, although most agree they will help thrust the country out of recession, a Reuters poll showed on Thursday.
The UK economy has been shrinking since late 2011, bruised by the Euro Zone’s debt crisis and austerity measures at home that have sapped domestic demand. But it should grow again this quarter by a hefty 0.7 per cent, the same amount it likely contracted by in the second quarter, according to the poll of more than 60 economists. Still, that consensus concealed a huge amount of uncertainty about Britain’s economic performance.
Forecasts for economic growth this quarter ranged from a 0.3 per cent up tick to a stellar 1.7 per cent surge, suggesting economists are having a particularly hard time gauging the effect of the Olympics. Stephen Lewis, chief economist of Monument Securities, argues the games were probably a secondary factor behind any rebound for Britain’s econoy. He thinks it probably will have to do with no lost working days during the quarter.“It’s hard to assess what the (Olympics) bounce will be, but in any case I think it should be much less
than any working day effect,” said Lewis.
Britain’s Office for National Statistics does not adjust its gross domestic product data for the number of working days. There are more days in Q3 than in the second quarter, which featured an extra holiday for the Queen’s diamond jubilee. “That in itself is going to give a boost to the economy,”
While the Olympics were largely hailed as a success, evidence for their economic impact is still sketchy. “A plus side is that all the ticket sales are being calculated for GDP purposes this quarter. But then of course we’ve all heard these complaints from traders around London about the effect of the Olympics on their businesses,” Lewis said.
After the third quarter rebound, economists expect growth to sink to a quarterly rate around 0.3 per cent in the quarters thereafter.
Back to printingDespite the rebound this quarter, Britain’s economy will end this year 0.3 per cent smaller than it was at the
start, compared with no growth predicted last month. That was the weakest forecast since Reuters began polling on 2012 GDP. The BoE’s latest Inflation Reports suggested that Britain’s economy will take until 2014 to regain its pre-crisis peak.
Chief among reasons for the gloomier out-look was news the UK economy shrank 0.7 per cent last quarter, according to preliminary data that was far worse than expected.
That prompted economists to suggest the Bank of England (BoE) will fire up its printing presses again in November, probably flooding the financial system with another 50 billion pounds of money.
BoE Governor Mervyn King last month warned that storm clouds rolling in from the Euro Zone made the outlook for the UK economy unusually uncertain, although he said there was no urgent need to print more money. Still, economists gave a median 65 per cent likelihood the Bank will extend its quantitative easing bond purchases to a total of 425 billion pounds, probably in November, from 375 billion presently. That is an extra 25 billion than the median forecast in a poll from late July.
“The current 50 billion pounds of QE purchases announced in July will be implemented through to early November, coinciding with the next inflation report — hence, this would be the obvious point to announce further easing,” said Ross Walker, senior UK economist at Royal Bank of Scotland.
Ten out of 63 economists thought the BoE will cut interest rates from their record low 0.5 per cent in the coming quarters. Although the BoE had discussed a rate cut in recent Monetary Policy Committee meetings, King, the governor, restated his opposition to such a move, arguing it could be counter-productive and even damaging to some financial institutions.
Falling inflation should also give policymakers more room for manoeuvre in the months ahead. Although inflation rose unexpectedly in July to 2.6 per cent from 2.4 per cent, the poll supported the BoE’s view it will likely undershoot the 2.0 per cent target in the fourth quarter of this year and the first quarter of 2013.