By Jennifer Ryan and Svenja O’Donnell
Sept. 29 (Bloomberg) -- The U.K. economy shrank less than previously estimated in the second quarter and mortgage approvals stayed near the highest in more than a year last month, a sign Britain is emerging from recession.
Gross domestic product fell 0.6 percent from the first quarter, compared with a prior measurement of a 0.7 percent drop, the Office for National Statistics said today in London. Banks granted 52,317 loans to buy homes in August, close to the highest level since April 2008, a separate report by the Bank of England showed.
Britain’s worst recession in a generation is easing after five consecutive quarters of contraction. Chancellor of the Exchequer Alistair Darling said yesterday that the recovery may be under way by the end of the year, supported by the government’s stimulus measures and Bank of England asset purchases.
“We should be looking forward to a decent positive number in the third quarter and an even better one in the fourth quarter,” said Alan Clarke, an economist at BNP Paribas SA in London in a Bloomberg Television interview. “But my view is: enjoy it while it lasts. We could see a soft patch in 2010.”
GDP slumped 2.5 percent in the first quarter, the most since 1958 and revised down from a 2.4 percent decline. The recession has now shaved 5.6 percent off gross domestic product. From a year earlier, the economy contracted 5.5 percent, the most since records began in 1956, the statistics office said.
Brown’s Promise
Prime Minister Gordon Brown promised last week to maintain stimulus spending until the recovery is secure. The Treasury plans to sell an extra 220 billion pounds ($349 billion) in debt this year and next year expects a deficit of 12 percent of GDP.
Brown’s ruling Labour Party fell to third place for the first time since 1982 in an opinion poll published today. Both Conservatives and Liberal Democrats led Labour in the Ipsos-Mori Ltd. survey finished Sept. 27.
“Many independent forecasters now believe the U.K. too is coming out of recession. I think it is too early to say so with total confidence,” Darling told the Labour Party annual conference in Brighton, England yesterday. “As long as we continue to support the economy, recovery will be under way in the U.K. by the turn of the year.”
A report by Hometrack Ltd. showed yesterday that U.K. house prices increased the most in two years in September as confidence in the property market improved. Services expanded at the fastest pace in almost two years in August.
GDP Breakdown
In the second quarter, manufacturing fell 0.1 percent, half the amount previously estimated, while construction declined 0.8 percent instead of 2.2 percent, the statistics office said. Services dropped 0.6 percent, unchanged from the prior assessment.
Wolseley Plc, the world’s largest supplier of heating and plumbing gear, said yesterday a decline in profits will slow next year while fund raising from investors along with cuts in working capital helped it pare debt. The Reading, England-based company has shed a total of 30,000 jobs as the recession hammered profit.
Bank of England Chief Economist Spencer Dale said last week that while the economy has “turned a corner,” the U.K. faces a “slow and protracted” climb out of the recession as unemployment continues to rise. The number of people seeking jobs rose in the three months through July to 2.47 million, the highest level since 1995.
Growth ‘Uncertainty’
“The fiscal stimulus is likely to subside from the middle of next year and it leaves a lot of uncertainty about the sustainability of growth momentum,” said Lena Komileva, an economist at Tullett Prebon in London. “The Bank of England may look to counterbalance the draconian tightening that’s in store from the next parliament.”
The household savings ratio, which measures the proportion of post-tax income saved, increased to 5.6 percent in the second quarter, the most since 2003, the statistics office said. Household disposable incomes adjusted for inflation rose 0.9 percent in the second quarter and were 0.7 percent higher than a year earlier.
Consumer spending, which accounts for two thirds of the economy, fell 0.6 percent in the quarter, revised up from a 0.7 percent drop, the report showed.
Gross domestic product will rise 0.3 percent in the third quarter and 0.4 percent in the last three months of the year, the Confederation of British Industry, the nation’s biggest business lobby, said last week. The central bank will start raising the benchmark interest rate from the current record low of 0.5 percent in the first half of 2010, the CBI says.
BOE Decision
Policy makers unanimously decided this month to maintain their plan to buy bonds with newly created money at 175 billion pounds, minutes of the Sept. 10 decision showed last week.
The current account gap widened to 11.4 billion pounds in the second quarter from 4.1 billion pounds in the previous three months, the statistics office said in a separate report today. That’s the most since 2007 and amounts to 3.3 percent of GDP.
“The stimulus is going to start to disappear and there’s going to be a severe and sustained fiscal squeeze that will keep growth relatively sluggish,” said Jonathan Loynes, an economist at Capital Economics Ltd. in London.
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net.
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