Britain to recover in second half then stall - analysts
May 28, 2009
By Rodney Jefferson and Peter Woodifield Edinburgh
The UK recession will probably end in the second half of this year, according to strategists in Edinburgh. Then growth may stall again over the next two years.
The shape of the global economic recovery might be "a W, a U, an L or a square root", although definitely not a "classic V", as job losses escalated and the government and consumers struggled with debt, the strategists said.
"It's a square-root recovery, where you see the sharp upward move and then it goes sideways," said Andrew Milligan, the head of strategy at Standard Life Investments. "Expect volatile economic data, expect volatile corporate reports, expect volatile consumer spending."
The strategists' views from the Scottish capital are at odds with those of British Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling.
Darling predicted in his annual budget on April 22 that the British economy would start to rebound later this year and that economic growth in 2011 would be 3.5 percent. That optimism about a V-shaped recovery is not shared by the International Monetary Fund (IMF).
The UK economy likely would contract 4.1 percent this year, the IMF said last week. The IMF also wanted the British government to cut debt faster than it was planning and to keep a lid on spending, it said in its annual health check on the British economy.
Bank of England governor Mervyn King said earlier this month that the UK recovery would be "relatively slow and protracted" as lending took longer to resume than previously thought.
Standard & Poor's cut the outlook on its AAA rating on the British economy to negative from stable the day after the IMF delivered its verdict and the ratings company said there was a one-in-three chance it would downgrade the UK.
"Recoveries are normally like a V, other people have talked about a W-shaped recovery where you get another downturn," said Bill Dinning, a strategist at Aegon Asset Management. "It's difficult to argue that we're going from darkness to nothing but sunshine."
Ken Adams, the head of global strategy at Scottish Widows Investment Partnership (SWIP), the fund unit of Lloyds Banking Group, said the recovery, when it came, would be anaemic and choppy.
"It is hard to get excited about growth," said Adams. "The trend could be less than we are used to. It's very hard to forecast the trajectory of the recovery in terms of time as there are some clear headwinds in place."
Adams, like Milligan, is anticipating periods of rapid growth and others when it slows.
"Quarter-on-quarter the data could be quite weak," said Adams. "I am prepared for a reasonable amount of economic volatility with lower than average growth over the next five years."
Aegon, SWIP and Standard Life Investments were all overweight on investment-grade corporate credit and equities, the strategists said.
Standard Life had more money than usual invested in UK and US government bonds, as well as in stocks, said Milligan. - Bloomberg
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