Economic recovery slowdown expected

Published: Thursday 23rd October 2014 by The News Editor

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Britain’s economic recovery is expected to post a slowdown when official figures are published tomorrow.

Analysts expect gross domestic product (GDP) to have grown by 0.7% in the third quarter of the year, down from 0.9% in the previous three-month period.

The increase would still represent strong growth and a seventh successive quarter of expansion for the UK.

But the slowdown comes amid fears for the health of the global economy that have brought turbulence to stock markets in the last couple of weeks.

The stagnating performance of the eurozone, Britain’s main trading partner, is a key concern.

The GDP figures from the Office for National Statistics (ONS) will come a week after Bank of England chief economist Andy Haldane signalled that gloomier prospects would push back the likely date for an interest rate hike well into next year.

Minutes from the latest meeting of the Bank’s rate-setting Monetary Policy Committee also showed a pessimistic view, arguing that gathering problems in the eurozone increased risks to a sustained recovery.

Uncertainty both abroad and at home – with the prospect of a looming general election in the UK – has led experts at EY ITEM Club to forecast strong expected growth of 3.1% for 2014 edging down to 2.4% next year.

Recent revisions to official GDP figures showed that the economy had recovered more quickly from the 2008/09 recession than previously thought, and was 2.7% above its pre-crisis peak by the middle of this year.

The UK is also enjoying record numbers in work, and unemployment recently dipped below two million to an eight-year low, while inflation is at a five-year low of 1.2%.

Yet productivity is flat-lining and wage growth, currently at 0.7%, has been lagging behind the rise in the cost of living for six years – leading Mr Haldane to conclude the economy was “writhing in both agony and ecstasy”.

The squeeze on real terms pay has been blamed for dismal public finance figures, showing borrowing 10% higher in the first half of the financial year than in 2013/14, compared to a target for a 12% fall in the deficit.

Meanwhile, recent survey data suggesting a slowdown in the expansion of the dominant services sector in October led to a claim that the recovery was “losing its legs”.

Figures have also pointed to manufacturing growth grinding to a halt.

Paul Hollingsworth of Capital Economics said: “The provisional estimate of Q3 GDP is likely to show that the economic recovery has maintained a healthy degree of momentum, but has become increasingly dependent on the services sector.

“The upshot is that while the recovery remains robust, it has become a bit more unbalanced.”

Published: Thursday 23rd October 2014 by The News Editor

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