British economy grinds to a halt
The British economy has ground to a halt with no growth during the second quarter of the year, official figures today reveal.
Gross Domestic Product (GDP) – which measures the rate of economic growth – measured zero in three months to June. This is a revised figure from the Office for National Statistics, which previously estimated the economy had grown by 0.2% during the period.
However, the picture appears to be worse than the previously thought, and the chance that the UK will enter a technical recession (two quarters of negative growth) before the end of 2008 is now extremely high.
Year-on year economic growth is now 1.4%, the weakest since 1992.
Richard Snook, an economist for the Centre for Economic Business Research, says the “substantial downward revision” will shock the markets and is likely to shake up the stockmarkets and price of sterling.
“The news brings to an end 64 quarters of consecutive growth and increases the likelihood that the Bank of England will move to cut rates before the new year,” he adds.
A huge fall in construction output is one of the main reasons for the stalling economy, along with lower household spending.
Peter Newland, economist at Lehman Brothers, says the economy is likely to go into decline moving forward.
“We continue to expect a technical recession in the second half of the year and the Monetary Policy Committee to respond with the first in a series of rate cuts in November,” he explains. “We judge that the risks of an earlier move have risen.”
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).