The United Kingdom's gross domestic product (GDP) contracted 5.2% year-over-year in the third quarter, disappointing analysts and dragging down European growth.
U.K. GDP shrank 0.4% on a quarterly basis where economists had expected to see 0.2% growth. Apparent recoveries in France and Germany were largely responsible for analysts' optimistic expectations, but it looks as though the United Kingdom is lagging significantly behind its European counterparts.
The July-September period marked the sixth consecutive quarterly contraction for the British economy, making this the longest downturn since the nation's Office of National Statistics began tracking data in 1955.
Jean-Michel Six, chief European economist at Standard & Poor's, told Reuters that the divergence stems from higher levels of consumer debt in Great Britain.
"U.K. consumers are coming out of a period of very significant leveraging, and the process of unwinding that is long and painful," he said. "You would expect savings rates to grow and credit demand to fall, weighing on the economy."
The Bank of England's (BOE) Monetary Policy Committee (MPC) announced in March that it would purchase as much as $287 billion (175 billion pounds) of debt. The minutes of the BOE's latest MPC meeting, released Wednesday, suggested the members were content to hold the quantitative easing ceiling at its current level, or even consider winding the program down. But with the economy recovering more slowly than anticipated policymakers may be forced to expand its bond-purchase program.
"Having pumped in so much money and still seeing a decline in GDP is damaging from a perspective of confidence and expectations for recovery," Stephen King, chief global economist at HSBC Holdings PLC, said in an interview with Bloomberg Television. "They'll be thinking very hard about whether to extend quantitative easing. They need to do something to show they care about the economy."
JPMorgan Chase & Co. (NYSE: JPM) economist Malcolm Barr expects the BOE to extend its bond purchase program to $367.8 billion (225 billion pounds).
Some analysts believe such an increase could come as soon as Nov. 5, which is the date of the MPC's next meeting. That would be before any possible revision in the GDP data, but few believe any recalculation will be sufficiently positive.
"Unlike previous downturns, this is a balance sheet recession characterized by overextended borrowers and undercapitalized lenders," Patrick Tooher at KPMG told The Wall Street Journal. "Repair will take years, not months."
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