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British Economy Recovered In Q1: IHS Global Insight

4/10/2012 9:26 AM ET

The British economy appears to have recovered in the first quarter, as indicated by the latest OECD leading indicator, allaying fears of a recession, IHS Global Insight chief European and UK economist Howard Archer said in a note Tuesday.

However, given likely muted and fragile economic activity over the next few months, the Bank of England may increase the size of its quantitative easing by a final GBP25 billion in the coming months. The central bank is unlikely to hike interest rates until at least late-20130, the economist noted.

According to IHS Global Insight, the British economy is estimated to have expanded 0.2-0.3 percent sequentially in the first quarter.

The firm, however, warned that the UK economy remains prone to relapses over the next few months at least as it continues to face serious domestic and international headwinds, including squeezed consumer purchasing power, rising unemployment, a reluctance of businesses to invest, tighter credit conditions, reduced investment and limited global economic activity.

It expects sustainable modest growth to develop from the second half of 2012, supported by reduced squeeze on consumers' purchasing power coming from lower inflation, improving global growth and ongoing favorable monetary policy. The economy is expected to grow 0.8 percent in 2012, marginally up from the 0.7 percent growth seen last year, the firm said.

The OECD leading indicator for the UK rose modestly for a second straight month in February. The index had stabilized in December after declining for eight successive months. The latest rebound signals that the the economy is recovering from fourth quarter's 0.3 percent GDP contraction.

The purchasing managers' surveys for March also showed an encouraging overall pick up in activity and pointed to overall growth in the first quarter, while February's modest fall in factory output and correction in retail sales volumes were suggestive of the economy's ongoing fragility, the economist noted.

by RTT Staff Writer

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