The Bank of England monetary policy committee is likely to boost its quantitative easing programme at its next meeting.
Figures from the Office of National Statistics show the UK’s GDP fell by 0.4 per cent in the third quarter of this year, the sixth consecutive quarter of contraction.
Commerzbank analyst Peter Dixon says: “The odds have clearly tipped in favour of an expansion following the MPC meeting in November.”
Dixon says the GDP contraction means the Treasury’s hopes of positive growth by the end of the year are very much in doubt.
He says: “From a market perspective, there are concerns that the UK is underperforming versus the rest of the industrialised world, which are clearly well founded in view of expectations of positive Q3 GDP growth in the US and eurozone.”
Barclays Capital analyst Simon Hayes says the MPC will also probably decide to start buying up gilts at the end of the year and may even decide to increase interest rates as early as August 2010.
Schroders European economist Azad Zangana says: “The GDP decline greatly increases the probability of more quantitative easing, probably extending the programme by as much as £50bn.”