Tuesday, 6 September 2011

UK Economy Could Be Stagnating

By Ben Aulakh

The British economy grew by just 0.2 per cent in the second quarter of this year, prompting fears among some economists that the economy is stagnating.

The figures, released by the Office of National Statistics also show that GDP grew by just 0.2 per cent over the last 9 months.

The overall growth rate in the economy for the rest of 2011 is also expected to remain low at around 0.8 per cent.

This shallow growth is in contrast to the rate of inflation, which moved up to 4.4 per cent in July, from 4.2 per cent in June.

Sluggish output in manufacturing and declining growth in the production sector in April, May and June this year are cited by the ONS as key factors in the countries poor economic performance.

However Tony Dolphin, Senior Economist at the Institute for Public Policy Research also cites high food and energy prices, January’s increase in VAT, and the government’s public spending cuts for the low rate of growth.

Mr Dolphin said, “Consumer and business confidence in the UK remains depressed, unemployment is increasing again, and there are more rises in gas and electricity prices to come, which will squeeze households’ spending power even further.

“It is now crystal clear that weak demand over the last three quarters has brought growth in the economy almost to a standstill.”

Mr Dolphin also says that the Coalitions deficit reduction measures risk pushing the economy back into decline.

He added, “This is not yet a double-dip recession, but it is almighty close to one.

“The chancellor’s gamble that fiscal consolidation and low interest rates would lead to a vibrant recovery led by the private sector is clearly not working, and the time has come for a change of course.”

“These economic indicators may mean that the clamour for a change of policy – either to temporarily cut taxes or to increase the scale of quantitative easing – is likely to grow.”

Another key indicator of business activity in the UK, the Markit/CIPS Purchasing Managers' Index, showed its biggest fall since the foot-and-mouth outbreak of 2001.

The index, which monitors business activity in the financial, IT and service sectors fell by 4 points, its biggest overall reduction in nearly a decade.

Companies contributing to the figures also said that business confidence was the lowest for a year, with firms blaming on going worries over the impact of government spending cuts for a lack of optimism.

Angela Eagle MP, Labour’s Shadow Chief Secretary said that the data painted a ‘bleak picture of an economy that has ‘flatlined’

She said, “It's no wonder that even the Chancellor's former supporters, from the head of the IMF to the founder of the world’s biggest bond fund, are now warning of the dangers of cutting too far and too fast and urging a change of course.”

“To kick-start the economy the Government should temporarily cut VAT and use the money raised from a tax on bank bonuses to build thousands of affordable homes and get people off the dole and into work.”

Photograph from www.news24.pk

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