U.K. economy shrinks unexpectedly
TEXT OF INTERVIEW
Steve Chiotakis: In Great Britain today, there’s a lot of head scratching over the latest Gross Domestic Product report. The economy there shrank in the third quarter of the year. Many economists had thought the GDP would rise, officially putting an end to the recession. Marketplace London correspondent Stephen Beard is with us live to talk about the reaction to the number. Good morning, Stephen.
Stephen Beard: Good morning, Steve.
Chiotakis: Stephen, how bad are these numbers and what’s behind them?
Beard: Britain’s GDP fell by four-tenths of 1 percent in the third quarter. And this is an historically bad figure. It’s the first time in more than half a century that the U.K. economy has contracted for six quarters in a row. What’s behind it? A sharp decline in the services sector — catering, hotels, distribution all performed badly. And more generally, consumer spending has softened. There was no growth at all in retail sales in November.
Chiotakis: And why, Stephen, did this report come as such a surprise?
Beard: Well because there have been some tentative signs of recovery over the third quarter. And more positive signs for the global economy. Also, the British government and the Bank of England have thrown so much at this economy, people were really expecting more signs of life. I mean, we’ve had a one-trillion pound bailout of the banks, a cut in sales tax, a big and quite successful car-scrappage scheme, and short-term interest rates of half a percent. So people thought, really, the economy had to have at least crawled back into positive territory after all that. The currency markets reacted quite badly to this, Steve. The pound fell a cent against a weak dollar on the news. Currency traders seem generally concerned that the U.K. may turn out to be the only major economy still in recession.
Chiotakis: Yeah, we’re going to see about that when we get the first look at U.S. third-quarter GDP next Thursday. Stephen Beard in London, thanks.
Beard: OK Steve.
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