GDP data to reveal if Britain in recession
First-quarter growth data on Wednesday is expected to show Britain close to - if not in - its second recession since the financial crisis started, potentially hammering business and consumer morale.
An apparent slump in construction at the turn of the year means Britain's services sector needs to report solid expansion if the economy is to avoid the two straight quarters of contraction that signal recession.
Most economists polled by Reuters think Britain will scrape through with gross domestic product growth of 0.1 percent or slightly more in the first three months of this year, but a sizeable minority see a slight contraction.
"The reason for that is the crazy construction data," said Brian Hilliard, UK economist at Societe Generale, who expects GDP to fall 0.2 percent. "But I would distinguish between what will be published and what will be happening on the ground."
This is a view shared by the Bank of England, one of whose policymakers, David Miles, said in an interview broadcast late on Tuesday that he would not be surprised to see a fall in GDP.
But even if economists doubt the construction data that feeds into the GDP estimate, the BoE has acknowledged that it may be a tougher sell convincing the public that the economy is growing, not shrinking.
And news of recession, meanwhile, could not come at a worse time for the governing coalition of Conservatives and Liberal Democrats. Hurt by a poorly received annual budget statement last month, the parties are trailing the Labour party ahead of municipal elections on May 3, their first big electoral test since winning power in 2010.
"A negative figure would carry political ramifications, but there'd be almost nothing the government could do about it. The budget has been and gone, and at this stage they don't have any scope for fiscal adjustment," said Investec analyst Philip Shaw.
Britain's economy shrank by 0.3 percent in the final three months of 2011. However since then, most private-sector surveys such as those from purchasing managers and that from the British Chambers of Commerce have pointed to moderate growth.
Moreover, official data has shown that the unemployment rate fell for the first time in nine months in February, and first-quarter retail sales volumes rose by 0.8 percent.
However, none of these figures contribute directly to the Office for National Statistics's estimate of first-quarter GDP - and the figures that do have generally been disheartening.
Industrial output for the three months to February fell 0.5 percent. More strikingly, construction output slumped more than 15 percent in the same period, albeit on a non-seasonally adjusted basis. This surprises economists, who say both the weather and the property market was better than a year earlier.
But even when seasonal adjustment, a likely rebound in March and construction's small share of GDP are taken into account, economists reckon the sector is likely to knock 0.5 percent off GDP, placing a heavy onus on other areas to create growth.