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UK economic growth even worse than thought
Second-quarter GDP growth was just 0.1%, while the recession was shorter and sharper than previously thought, ONS says.
by Chris Marshall on Oct 05, 2011 at 09:57
The UK’s economy has been growing even slower than previously thought, according to a revision of second-quarter figures that showed GDP growth of just 0.1% in the second quarter of the year.
The figure marks a downward revision from the previous Office for National Statistics (ONS) estimate of 0.2%. It follows growth of just 0.4% in the first quarter of the year.
The ONS said that the weak growth so far this year reflected continuing declines in real wage growth, an uncertain labour market, relatively high rates of inflation and the weakening global economic position, in particular the UK's key export markets in Europe and the US. The government has repeatedly stressed the importance of export growth for the UK recovery, but the ONS's latest stats show that exports of goods fell 3.5% in the second quarter. Exports of services rose 2%.
Volatility in financial markets and low returns on savings were also damaging consumer and business confidence, the report said.
'The economy will continue to face serious headwinds in 2012, particularly ongoing tight fiscal policy and likely limited global growth,' while a Greek default 'would have significant negative implications for UK growth prospects', commented Howard Archer of IHS Global Insight.
Although the UK is not expected to fall into recession – technically two consecutive quarters of negative growth – the Bank of England has said that it could launch a second round of its quantitative easing programme should the economy worsen, with some economists expecting this to be announced after the bank's meeting tomorrow. Although the second quarter may have been worse than thought, indices of British services and manufacturing activity for August have shown rises this week.
James Knightley of ING said that a November announcement on a second round of quantitative easing was more likely as this would coincide more closely with eurozone and US monetary policy meetings, as well as the G20 summit in Cannes. 'Being seen to act in some kind of coordinated fashion may also give the stimulus “more bang for its buck”', Knightley said.
The ONS has changed the way it estimates economic growth, incorporating some new data while ditching some old assumptions. It has therefore revised its assumptions about the scale and length of the credit crisis, which it says was shorter but deeper than previously thought. This is shown in the chart below:
Archer commented: 'The adjustments to the GDP history, do not change the current situation which is of an economy struggling for growth in the face of major domestic and international headwinds.'
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