The end of 16 years of growth
(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)
After months of slowing growth, the Office for National Statistics (ONS) has said that last month the UK economy remained unchanged, the first time the economy has not grown since 1992.
An earlier estimate put growth at a miserly 0.2% but this was revised downwards. Some analysts are now saying that the 0% figure is in fact optimistic and that we are already in recession.
The Eurozone economy is already contracting. Since this is the biggest trading partner of the
UK exports are expected to fall further in the next few months. Meanwhile, the services sector, the backbone of the UK economy, grew just 0.2%, while manufacturing output fell by 0.8%. Household spending dropped by 0.1%.
The figures are likely to raise expectations of a cut in interest rates to prevent a protracted slowdown. However, inflation, which hit 4.4% in July, could make it more difficult for the Bank to cut interest rates to spur the economy. Analysts said the zero growth reading could lead to lower borrowing costs by the end of this year.
There is a major symbolic aspect to the zero growth announcement. The government liked to highlight the unbroken run of growth going back to 1997, when it came to power, and generally ignored the five years before.
But the 16 year run is a record unmatched by any other leading economy. That run has now come to an end and few are predicting when it will pick up again.
Of course, these figures could yet be revised again, perhaps back upwards. But all the signs suggest that economic growth is on a downward path. The third quarter, which we are now in, and the fourth could well turn negative, signifying a technical recession.
Even if flat or slightly positive, this year’s growth will be the weakest since 1992.
