World financial news

The U.K. economy probably grew for the first time in more than a year in the third quarter as a pickup in manufacturing and service industries ended the worst recession since World War II, a survey showed.

Gross domestic product probably rose 0.2 percent in the three months through September after contracting 0.6 percent in the previous quarter, according to the median of 33 forecasts in a Bloomberg News survey. The Office for National Statistics releases figures at 9:30 a.m. in London.

U.K. officials are showing little willingness to rein back stimulus measures even as the economy starts to rebound. Chancellor of the Exchequer Alistair Darling said this week he will focus on cementing the recovery in time for a general election due by June. Bank of England Governor Mervyn King said Oct. 20 there should be no illusion that a return to growth will be smooth. Policy makers will decide in two weeks whether more bond purchases will be necessary to boost growth.

“A figure of 0.1 or 0.2 isn’t a big deal, because even that won’t be enough to start shrinking the spare capacity in the economy,” said Colin Ellis, an economist at Daiwa Securities SMBC in London and a former central bank official. “That’s what matters in the medium term for inflation. They should do more QE in November.”

The GDP data is the first for the third quarter from a Group of Seven nation. Central banks in Canada and Italy both forecast slumps in their economies ended in the same period, and the U.S. probably also returned to growth then, according to the median forecast of economists in a Bloomberg News survey.

France, Germany and Japan exited their recessions in the second quarter.

‘Well Below’

The economy’s output is still “well below” the levels of a year earlier and there should be no illusion of a “smooth and painless” return to sustainable growth, King said on Oct. 20. Officials said at their Oct. 8 meeting that improvements in conditions for banks are of limited significance and there is still a danger of further losses.

“More than six months out, there’s no question we’re going to have to reverse the extreme policy measures we took,” Posen said in an interview with BBC Radio Scotland broadcast today. “The question is what point is the economy ready to sustain, on a private-sector basis, the recovery. There’s legitimate discussion and differences as to how close we are to that.”

Recovery

Credit losses and writedowns worldwide now total $1.6 trillion. Lloyds Banking Group Plc and the government are weeks away from an agreement on whether the lender can escape a program to insure up to 260 billion pounds of potentially toxic assets, a person familiar with the matter said yesterday.

Prime Minister Gordon Brown is looking to the recovery for respite as his ruling Labour party struggles to erode the poll lead held by David Cameron’s Conservatives. The opposition party had a 17 percentage-point gap over Labour in an ICM Research poll for the Guardian newspaper published on Oct. 21.

The economy will contract 4.4 percent this year and then expand 1.3 percent in 2010, according to forecasts released this week by the National Institute of Economic Research.

Unemployment may keep rising even after the end of the recession as a lagged effect of the slump. St. Ives Plc, the U.K. printer of the Economist and Vogue magazines, has shed about 12 percent of workforce, Finance Director Matt Armitage said on Oct. 19.

Niesr says that the Bank of England should pause its bond- purchase program at the Nov. 5 decision, when officials will have revised forecasts on the economy. The British Chambers of Commerce has called for a further expansion of the plan to reach 200 billion pounds to secure the recovery.

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