MPC meet in bid to solve riddle of UK economy
Quantitative easing on agenda again as data increases 'double dip' fears
A Northern Ireland economist has said worsening UK economic data could prompt the Bank of England to inject more money into the economy.
PwC chief economist Esmond Birnie was speaking after the latest set of economic data raised fears that a double dip recession could become a reality.
The Office for National Statistics (ONS) figures showed UK gross domestic product (GDP) was revised down to 0.1% between April and June, compared with an earlier estimate of 0.2%.
In addition, growth in the first quarter was downgraded to 0.4% from 0.5%, and in further troubling signs, retailer Mothercare and airline Flybe both issued profit warnings.
The worrying data will pile pressure on the Bank of England which will reveal the outcome of its policy meeting today, in particular whether to roll out further emergency measures to jump-start the flagging recovery.
Dr Birnie said: "With growth so weak, it's possible we will see today's Bank of England Monetary Policy Committee (MPC) consider another round of quantitative easing.
"For 2011 as a whole, overall UK GDP growth will probably average 1% or even less.
"But with quarter two posting an 0.8% fall in consumer spending, a 1.2% slide in production output and services output at a mere 0.2%, some UK regions may be close to a virtual standstill."
Richard Ramsey, chief economist of Ulster Bank, pointed to household data in the ONS figures.
"The most negative aspect of the figures is the fact that household spending fell by a whopping 0.8%," he said. "That is the largest quarterly decline since the first quarter of 2009 when the economy was in its most intense downturn phase. "
Dr Birnie said Northern Ireland and the north of England will be hardest hit.
"We have already downgraded the Northern Ireland regional growth forecast to no more than 0.8% for 2011 and I suspect other regions, especially in the north of England, will face a similarly gloomy growth picture."
He said Government spending, which had previously supported growth, was drying up now that spending cuts had begun.
Exports were also falling back, exacerbated by weakness in European and US markets.
But he added that the MPC may wait until November before more quantitative easing when it will have the benefit of third quarter GDP estimates, and will have updated its quarterly inflation forecast.
"By that stage we may have more clarity about the Chancellor's recent proposal to introduce a form of "credit easing" to more directly encourage loans to businesses."
But there was some respite yesterday as purchasing managers index (PMI) data showed the services sector rebounded in September and business investment increased 11.6% in the second quarter to £30.6bn.
Howard Archer, chief UK and European economist at IHS Global Insight, said "the risk of renewed recession has clearly risen recently".
He added: "The adjustments to the GDP history do not change the current situation which is of an economy struggling for growth in the face of major domestic and international headwinds."
The data comes amid increasing fears over the future of the eurozone as Greece fights to stave off a debt default, Italy's public finances come under pressure and major European banks falter.
Manufacturing, service and trade surveys have recently pointed toward a slowdown or possible contraction in growth for the third quarter.
Official GDP estimates for July to September will be released on November 1.
However, PMI services data for September, released yesterday, showed a boost to new orders and stronger demand in the dominant sector.