Economists predict slower growth

Shop closure signs in York as official figures are tipped to show the UK economy slowed sharply over the past three months
12 April 2012

Official figures due on Tuesday are tipped to show that the UK economy slowed sharply over the past three months and may even have gone into reverse.

Earlier forecasts of 0.5% growth in GDP have now been trimmed back by most City economists to about 0.1% or 0.2%.

A number are even more bearish and predict Tuesday's figures from the Office for National Statistics could show the economy contracted over the three months to June.

The figure is subject to revision, but a poor reading would heap more pressure on Chancellor George Osborne to come up with an alternative strategy to the Government's deficit reduction plan.

As well as reducing spending, the strategy relies upon the economy growing, but manufacturing, services and construction may be too weak to cope with the fiscal squeeze, say economists.

Manufacturing output rose by 1.8% between April and May but has still "shifted down a gear recently", say observers, with output over the past three months lower than the previous quarter. The services sector, which accounts for some three-quarters of the economy, grew at 0.5% over the past three months, down from 0.8% in the previous quarter.

A number of one-off features such as the Japanese earthquake and extra bank holiday will further complicate the picture, with even the sale of Olympics tickets possibly having an impact as they will be included in the figures measuring consumption.

Opposition politicians have already called for the Chancellor to reverse the VAT rise that came in at the start of the year.

Shadow chancellor Ed Balls accused Mr Osborne of leading the country into a "Greek-style" trap through cutting back too quickly, adding that unless you have got "people in work paying taxes, the economy growing", it is hard to get deficits down.

Howard Archer, chief European economist at IHS Global Insight, expects the GDP number to make very disappointing and worrying reading. He said: "IHS suspects that the economy only eked out growth of 0.1% quarter-on-quarter in the second quarter after activity was flat overall through the first quarter of 2011 and the fourth quarter of 2010."

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