Just as Britain’s economic recovery may have finally gained momentum, events at home and abroad risk slowing it in its tracks. Economists predict U.K. gross domestic product rose in the second quarter by the most since the nation exited its worst recession on record in 2009, according to the median forecast in a Bloomberg News survey. With the deepest public-spending cuts since World War II looming and the debt crisis hampering the euro region, some of them including Alan Clarke at BNP Paribas in London say the economy may be about to weaken. “The second quarter is going to be as good as it gets and then we’re going to go into a soft patch,” Clarke said in a telephone interview. “Europe doesn’t help our export prospects and fiscal policy doesn’t help domestic prospects. I don’t think they’ll hike rates until 2012.” Bank of England officials said this month that Britain’s growth prospects have “probably deteriorated,” as they considered expanding emergency stimulus and blocked Andrew Sentance’s bid to increase interest rates, minutes of their decision show. The government’s own fiscal monitor says the budget squeeze has raised the chance of a return to recession. GDP probably rose 0.6 percent in the three months through June, twice the pace of the previous quarter, the median forecast of 32 economists in the Bloomberg survey shows. The data, the first for the second quarter from a Group of Seven nation, will be released by the Office for National Statistics at 9:30 a.m. tomorrow in London. ‘Best Quarter’ “It could be the best quarter for a while,” said Neil Mackinnon, an economist at VTB Capital in London and a former U.K. Treasury official. “Fiscal policy is being tightened aggressively, and that will mean job losses and all the uncertainty that creates.” That uncertainty may already be building. Consumer confidence dipped to the lowest in a year last month on Nationwide Building Society’s gauge as Britons braced for the budget squeeze unveiled by Chancellor of the Exchequer George Osborne on June 22. The measures will slice 85 billion pounds ($129 billion) from spending, equivalent to 5.7 percent of GDP, according to Institute for Fiscal Studies estimates. Osborne’s budget has increased the chance of another slump, Geoffrey Dicks, the head of economic forecasting at the Office for Budget Responsibility, said on July 13. A week earlier, the International Monetary Fund cut its forecast for U.K. growth this year and next. It predicts 2.1 percent expansion in 2011, compared with 2.9 percent for the U.S., 1.3 percent in the euro area, 1.8 percent in Japan and 2.8 percent in Canada. BOE View Bank of England officials have become more pessimistic. It is “likely” the budget measures “pushed down a little on the most likely path for output,” they said in minutes of the July 8 decision released yesterday. The medium-term growth outlook “might have weakened,” they said. Officials kept the benchmark interest rate at a record low of 0.5 percent, overruling Sentance’s push to raise it to 0.75 percent. They discussed whether the economy needed more stimulus after 200 billion pounds in bond purchases to aid the recovery. “There is a sense they’re getting more concerned about the growth outlook,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London and a former U.K. government adviser, said in a telephone interview. Walker predicts a 0.5 percent growth result for the second quarter. “If we’re getting 0.5 and 0.6 percent numbers in subsequent quarters, it’s still not a great recovery, and I’m not expecting anything above that,” he said. Still “we don’t see a dramatic slowdown in the second half.” Euro Crisis Officials have shown concern that the debt crisis in the euro region, Britain’s biggest export market, may also endanger the U.K.’s economic growth. While the results of European Union stress tests on the strength of 91 banks due tomorrow may help to improve financial market confidence, “considerable uncertainties remained,” policy makers said in the minutes. A slowdown in the global economy may further threaten Britain’s prospects. Tomkins Plc, a U.K. maker of auto parts and building materials, said this week that sales and profitability may weaken in the second half. The Federal Reserve last month cut its forecasts for U.S. economic growth this year and pledged to keep interest rates near zero for an “extended period.” “I think the global backdrop isn’t very growth friendly and we can’t ignore that in addition, the U.K. economic recovery does seem fragile,” said VTB’s MacKinnon, who predicts a 0.3 percent result tomorrow. “There’s a risk third-quarter and fourth-quarter growth could disappoint.” To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net

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