UK second quarter growth dips to 0.2 per cent

The UK economy looked unlikely to pick up from the meager growth rate of the second quarter even as worried consumers slashed spending and the global outlook turned gloomier.

With the government's hands bound due to tough austerity measures aimed at clearing a huge budget deficit, the onus to boost growth lay on the Bank of England, though a fresh round of monetary stimulus would not likely be forthcoming for the time being.

The economy clocked just 0.2 per cent growth in the second quarter, which took the annual growth to 0.7 per cent, according to the Office for National Statistics.

According to analysts, the main concern was whether the soft patch would turn into something more protracted.

They added that according to business and consumer surveys, growth most likely remained lacklustre in July and August. They said they expected an expansion of only 0.2 per cent between July and September.

Between April and June growth was hurt by a number of special factors, including an extra holiday for the royal wedding and supply chain disruptions following the March earthquake and tsunami in Japan.

According to the ONS, those factors shaved off 0.5 percentage points of quarter-on-quarter growth and analysts expect some of this to be recovered in the third quarter.

Industrial output was down 1.6 per cent, slightly more than first estimated. It was also the worst quarterly decline since the first three months of 2009.

Some economists expect the special factors to unwind in the third quarter, which would lead to a rebound in the market. However, they say the slowdown in key export markets, the riots in major British cities and the stock market slump had rendered the outlook for the economy uncertain.

The UK consumer has cut back spending as mounting prices, higher taxes and slow wage increases ate into their budgets, while uncertainty about job security weighed on sentiment.

Meanwhile, the Bank of England has cut its growth forecast for the UK economy this year to just 1.4 per cent and many analysts believe this to be on the higher side.
 
According to the central bank, the interest rates were likely to stay at the record low of 0.5 per cent well into 2012 and speculation had grown that it may have to launch a fresh round of asset purchases to support the fragile recovery.