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UK grinds to a halt as fear of slipping back into deep recession rises
The services sector shrank for a third straight month in July and manufacturing output fell for a fourth month in a row in June, data showed today, sharpening fears of a deep economic slowdown.
Many economists say Britain risks slipping into its first recession since the early 1990s as high credit costs douse the once red-hot housing market and companies struggle with sharply rising costs.
However, the Bank of England is expected to keep interest rates at 5% at its monthly meeting on Thursday because inflation is running at almost twice its 2% target.
"The data just confirm that the economy has pretty much ground to a halt going into the third quarter," said Vicky Redwood, an economist at Capital Economics.
"It doesn't suggest we have entered a recession yet, but it doesn't seem like a recession is far off."
Adding to the gloom, weaker than expected official data for industrial production suggested the initial estimate of second quarter GDP growth of 0.2% growth could be revised down.
"There's no doubt that what is happening now is far more profound and will be more prolonged than people thought 12 months ago when this problem first arose," Chancellor Alistair Darling told BBC radio earlier today.
Further evidence that the economy is set for a turbulent period and possibly a recession -- two consecutive quarters of contraction -- will add to pressure on Prime Minister Gordon Brown,because his reputation for economic competence has taken a tumble.
He now faces the tough task of having to win back support before the next election due by mid-2010 in the face of a restive party, soaring living costs and rising unemployment.
The Office for National Statistics said factory output unexpectedly fell 0.5% on the month, the fourth month of declines and the first time it has fallen consistently for that length of time since 2001.
The economy expanded 0.2% in the second quarter of this year, according to preliminary ONS data, but statisticians said June's industrial output figures were "a downward drag" and would shave about 0.06%age point off the initial reading.
"There is a chance second quarter GDP could be revised down from an already weak pace of activity," said Philip Shaw, an economist at Investec.
However, sustained price pressures are likely to stay the Bank of England's hand on interest rates on Thursday.
The services PMI survey showed cost inflation easing slightly but still notching its second highest reading on record.
The prices charged index was little changed at 55.9 from 56.0 and remains significantly higher than it was last year, showing companies were prepared or obliged to pass on some of their increasing costs to customers despite weakening demand.
Many economists say Britain risks slipping into its first recession since the early 1990s as high credit costs douse the once red-hot housing market and companies struggle with sharply rising costs.
However, the Bank of England is expected to keep interest rates at 5% at its monthly meeting on Thursday because inflation is running at almost twice its 2% target.
"The data just confirm that the economy has pretty much ground to a halt going into the third quarter," said Vicky Redwood, an economist at Capital Economics.
"It doesn't suggest we have entered a recession yet, but it doesn't seem like a recession is far off."
Adding to the gloom, weaker than expected official data for industrial production suggested the initial estimate of second quarter GDP growth of 0.2% growth could be revised down.
"There's no doubt that what is happening now is far more profound and will be more prolonged than people thought 12 months ago when this problem first arose," Chancellor Alistair Darling told BBC radio earlier today.
Further evidence that the economy is set for a turbulent period and possibly a recession -- two consecutive quarters of contraction -- will add to pressure on Prime Minister Gordon Brown,because his reputation for economic competence has taken a tumble.
He now faces the tough task of having to win back support before the next election due by mid-2010 in the face of a restive party, soaring living costs and rising unemployment.
The Office for National Statistics said factory output unexpectedly fell 0.5% on the month, the fourth month of declines and the first time it has fallen consistently for that length of time since 2001.
The economy expanded 0.2% in the second quarter of this year, according to preliminary ONS data, but statisticians said June's industrial output figures were "a downward drag" and would shave about 0.06%age point off the initial reading.
"There is a chance second quarter GDP could be revised down from an already weak pace of activity," said Philip Shaw, an economist at Investec.
However, sustained price pressures are likely to stay the Bank of England's hand on interest rates on Thursday.
The services PMI survey showed cost inflation easing slightly but still notching its second highest reading on record.
The prices charged index was little changed at 55.9 from 56.0 and remains significantly higher than it was last year, showing companies were prepared or obliged to pass on some of their increasing costs to customers despite weakening demand.
Tue, 5th Aug 2008