U.K. Economy Shrinks Less Than Previously Estimated

By Jennifer Ryan

Dec. 22 (Bloomberg) -- The U.K. economy shrank less than previously estimated in the third quarter as a jump in construction and fixed investment brought the longest recession on record closer to ending.

Gross domestic product fell 0.2 percent from the second quarter, compared with a previous measurement of a 0.3 percent drop, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 24 economists was for a 0.1 percent contraction. The recession has now shaved 6 percent off GDP, the statistics office said.

The Confederation of British Industry yesterday raised its 2010 economic growth forecast and said the Bank of England may pause its bond-purchase plan in February. Policy makers have pledged to print 200 billion pounds of new money to stoke spending and shake off Britain’s longest recession on record.

“We’ll have growth returning in the fourth quarter, absolutely,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “The bank will start taking back its policy accommodation next year. There won’t be any more bond purchases, and the first rate increase will be in August.”

The pound was little changed at $1.6046 as of 9:53 a.m. in London. The yield on the two-year government bond was up 1 basis point today at 1.185 percent.

Recession Damage

The economy contracted 5.1 percent from a year earlier, more than the 4.9 percent median forecast in a Bloomberg News survey of 21 economists.

The U.S. economy probably grew an annualized 2.8 percent in the third quarter, according to the median forecast of 62 economists. The Commerce Department will publish that data at 8:30 a.m. in Washington.

Construction jumped 1.9 percent, compared with a previous estimate of a 1.1 percent drop, the statistics office said. That offset bigger contractions in services and industrial production.

Travis Perkins Plc, the U.K. building-materials supplier that owns the Wickes home-improvement chain, said Dec. 17 it expects earnings for 2009 to be “at the upper end” of analyst estimates as spending on do-it-yourself projects aided sales.

Fixed investment increased 2.2 percent, instead of the 0.3 percent drop previously measured. Government spending rose 0.3 percent and consumer spending increased 0.1 percent, the statistics office said.

Election Looming

Prime Minister Gordon Brown is trying to revive the economy and rebuild support in time for an election which he must call by June. In an Ipsos-Mori poll published in the Observer on Dec. 20, the opposition Conservatives had support of 43 percent of voters, a 17 percentage point lead over Brown’s ruling Labour Party.

The economy may already be expanding again. Bank of England policy maker Kate Barker said in an interview last week that economic growth probably resumed in the fourth quarter. Unemployment unexpectedly fell in November for the first time since February 2008.

The Royal Institution of Chartered Surveyors today forecast house prices will rise as much as 2 percent in 2010. The CBI yesterday raised its 2010 growth forecast to 1.2 percent from a previous prediction of 0.9 percent. The group said the central bank will start raising the key interest rate from a record low of 0.5 percent in the second quarter.

Barker, speaking on Dec. 15, said that the economic pickup may still lapse in 2010.

‘Bumpy’ Recovery

“I’ve always been one of the people who thought that the path of this recovery was likely to be quite bumpy and uneven,” she said. “I wouldn’t rule out the possibility that we’d see another quarter of negative growth.”

The household savings ratio, which measures the proportion of income hoarded by consumers, rose to 8.6 percent in the third quarter, the most since the first quarter of 1998, the statistics office said.

The current account gap widened to 4.7 billion pounds in the third quarter, or 1.3 percent of GDP, from 4.4 billion pounds in the previous three months, the statistics office said in a separate report today.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net