North Sea gas leak threatens fragile economic recovery

Britain’s economy shrank by more than we thought in the last three months of 2011, down 0.3 percent instead of the 0.2 percent fall in the first official estimate.

It is disappointing but it is not much more than a little extra light and shade to a picture we already knew: The economy was very weak last year. What is more important is the outlook for the year ahead. Here the official forecast is for growth of 0.8 percent, which is anaemic at best, and fragile.

Exactly how fragile? Could the fuel tanker dispute knock a recovery off kilter? Eric Wand at Lloyds Bank thinks that if petrol supplies run low there may be a short-term impact, perhaps on inflation, as petrol prices rise. But the longer term impact may be small.

But there are other threats as well. Yesterday we reported the escalation of the gas leak on a North Sea platform owned by Total. It is an isolated incident at one rig but has led to other rigs being shut down in an oil field that produces seven percent of British oil and 14 percent of British gas.

If Total has to drill a relief well to stop the leak – which could take six months – HSBC’s UK economist Simon Wells warns it could lop 0.2 percentage points off growth of the whole national economy in the second quarter of this year.

That’s a quarter of the official forecast lost to an accident. Fragile indeed.