---- by Pan Pylas ----
LONDON (AFX) - The longest period of postwar economic expansion in the UK may have come to an abrupt end in the fourth quarter of 2001 but economists expect a pick up soon and rates to remain at their historic lows for longer than previously anticipated.
Provisional estimates from National Statistics showed fourth quarter GDP unchanged on the previous quarter, leaving it only 1.7 pct higher year-on-year. But earlier estimates last month suggested that GDP had risen 0.2 pct on a quarterly basis or 1.9 pct on an annual basis.
Most economists had pencilled in no changes but alarm bells began ringing yesterday after a sharp deterioration in fourth quarter business investment due to the largest decline in company profits in almost three yeas.
NS said the quarterly performance was the worst since the second quarter of 1992, when output slumped by 0.3 pct at the height of the last major recession to hit the UK.
Royal Bank of Scotland economist Ross Walker noted that revisions to back data left growth in 2001 as a whole undented at 2.4 pct, in line with trend and the strongest performance among the G7 economies. "The UK looks to have avoided not only recession but even a fall in output -- all in all, a great escape," he said. That's no mean feat; Germany today posted a 0.3 pct quarterly GDP decline and France posted a 0.1 pct quarterly decline last week. The falls in the US have been even more dramatic. Nevertheless, Chancellor Gordon Brown and the Bank of England's Monetary Policy Committee shouldn't be patting themselves on the back too much, despite growth set to pick up in the first half of this year, economists cautioned. Manufacturing remains mired in recession and the Confederation of British Industry called on the government to listen to industry pleas for a manufacturing plan.
The UK economy continues to exhibit major imbalances with fourth quarter consumption strong. "This is likely to stay the Bank's hand in cutting rates for fear of exacerbating existing economic imbalances," said Investec economist David Page.
However, rate cuts aren't on their way any time soon, as the Bank of England governor repeatedly insists. In evidence to the House of Lords Select Committee last night, George said economists "are probably a bit closer to our view (on rates) than some of the actual traders". Most economists expect rates to rise steadily to around 4.5 pct this year against the 5 pct anticipated by the money markets. "Today's figures, despite being old data, add to the weight of evidence to suggest rates will be left on hold for some time yet, and we expect the eventual tightening will be more modest than the market currently anticipates," said Deutsche Bank economist George Buckley.