Britain's economy grew by a weaker than expected 0.1 percent in the second quarter, official figures showed Wednesday, a downgrade that could pile the pressure on the Bank of England to back calls for another stimulus into the economy.
Coupled with news that the recession of 2008 and 2009 proved deeper than previously estimated, the Bank of England's nine rate-setters will have much to ponder as they begin their monthly two-day policy meeting. However, some analysts said a positive services survey Wednesday could prompt rate-setters to wait until November.
The Office for National Statistics had previously estimated that GDP grew by 0.2 percent in the second quarter. It said decreases in production industries and household consumption were largely behind the lower growth rate.
It also reduced first quarter growth to 0.4 percent from 0.5 percent previously. Perhaps even more dramatically, the agency said Britain's economy shrank by 7.1 percent as opposed to 6.4 percent in the recession of 2008-2009.
The disappointing figures come as the Bank of England's Monetary Policy Committee began its monthly two-day meeting amid growing expectations that it will approve a new round of quantitative easing to pump more billions into the economy. Minutes to the last meeting showed that the rate-setters discussed the possibility of further measures, including another cut in interest rates.
Jonathan Loynes, chief European Economist at Capital Economics, said the downward revisions give rate-setters "further justification" for more so-called quantitative easing, whereby the Bank of England buys up financial assets from institutions in the hope that they use the proceeds to lend in the wider economy.
However, Chris Williamson, chief economist at Markit, said a services survey his firm conducts may prompt the Bank's nine policymakers to hold fire. The Markit/CIPS index rose to 52.7 in September from 50.9. Any number over 50 indicates that most purchasing managers expected improved activity.
"Policymakers may choose to wait until more evidence on the health of the economy becomes available with the publication of October surveys, third quarter GDP data and the Bank's updated forecasts," Williamson said.
The Bank of England launched its program of quantitative easing in March 2009 after lowering its main interest rate to 0.5 percent, a level it has indicated is as low as it could go.
Between March 2009 and January 2010, the Bank purchased 200 billion pounds ($310 billion) of assets, mainly government securities.
A recent Bank of England report estimated that quantitative easing raised the level of real GDP by 1.5 percent to 2 percent but also boosted the inflation rate by as much as 1.5 percent points.
"These estimates are clearly highly uncertain, particularly as none of the methods used to produce them fully capture all the likely transmission channels set out earlier, but they do suggest that the effects of QE were economically significant," said the report in the Bank's Quarterly Bulletin.