UK economic growth cut to 0.1% for April to June

• ONS halves its GDP estimate for Q2 • 2008-9 recession deeper than thought • Business groups lobbying for more QE • But services sector bounced in September • Economics blog: fresh UK double-dip fears The UK economy barely grew in the second quarter as consumers cut spending, compounding more downbeat news from the eurozone and fuelling fears that Britain could soon slip back into recession . Official data also showed the 2008-2009 recession was deeper than orginally thought. Revising previous numbers, the Office for National Statistics halved its GDP estimate for April to June this year to just 0.1%, suggesting the economy had already ground to a halt before the European debt crisis escalated in the summer. Household spending dropped 0.8%, its sharpest decline since the depths of the recession at the start of 2009. With a bleak European outlook the Bank of England is expected to step in soon with another £50bn in electronic money to shore up the economy. But after separate news this morning that Britain’s dominant services sector defied market expectations and enjoyed a mild pick-up last month, the decision over whether to extend quantitative easing (QE) right away is likely to be finely balanced. Growth across the UK services sector – which accounts for more than 70% of the UK economy – quickened in September recovering from a sharp slowdown in August, according to a monthly survey of purchasing managers conducted by Markit and the Chartered Institute of Purchasing & Supply. The seasonally adjusted index, which measures activity across the sector, rose to 52.9 in September from 51.1 in August. Economists had been predicting a reading of 50.5, barely clear of the 50-point mark that separates expansion from contraction. But companies remain deeply worried about spending cuts and the general economic outlook with business confidence at it lowest since early 2009 when Britain was mired in recession. Meanwhile, similar surveys in the eurozone this morning showed deeper woes. Italy’s services sector shrunk at its sharpest pace for more than two years in September while Germany’s service industries have slipped into contraction territory for the first time since July 2009. The BoE’s monetary policy committee meets Wednesday and Thursday but analysts say it may wait until next month when it has its latest economics forecasts to hand to launch more QE. “We believe it is only a matter of time before we see more QE,” said James Knightley at ING Financial Markets. “We favour November as the announcement point … given close proximity to the Fed and ECB policy meetings and the Cannes G20 summit. Being seen to act in some kind of coordinated fashion may also give the stimulus “more bang for its buck” rather than going it alone currently in what are very volatile markets and a mixed environment for data.” The services survey is closely watched given the services sector dominates the UK economy, with businesses ranging from hairdressers to insurers. Commenting on the details of the PMI survey, Chris Williamson, chief economist at Markit said the headline reading “masks the fact that all is not well in the UK services economy.” “Growth of new business will need to pick up in the coming months to prevent a downturn in both business activity and employment in the final quarter of 2011. Companies are already reluctant to take on extra staff, with employment more or less stagnating in September, as worries about the economic outlook at home and abroad intensified.” With the threat of a double-dip recession worrying their members, some of Britain’s biggest business lobby groups have urged the MPC to step in with more QE, which involves the bank buying government bonds from banks to boost their finances and improve lending rates. Policymakers with have to weigh growth concerns against persistently high inflation, but several members of the committee have indictaed in recent speeches that more QE will come soon. Economic growth (GDP) Economics Services sector Recession Quantitative easing Bank of England European debt crisis Katie Allen guardian.co.uk

Posted by on October 5, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.