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UK grows at slowest rate for 12 years • Chancellor could have to reduce estimates
again Britain's economy grew at its slowest annual rate for 12 years in the second quarter, according to official figures published yesterday, suggesting that Gordon Brown, the chancellor, may have to cut his newly-revised growth forecast for this year even more aggressively. The figures from the Office for National Statistics coincided with more bad news from the high street and the release of the CBI's weakest retail survey for 22 years. Alan Giles, chief executive of HMV, the record and music group, which has seen a 9.2 per cent fall in underlying sales since the year began, said people faced increased pressure on disposable incomes which meant they were staying at home. "This perhaps even explains why Premiership clubs are seeing attendances fall," he said. "People have battened down the hatches and that knocks on to us." House of Eraser, the country's third biggest department store group, reported that its underlying sales had fallen 4.3 per cent in the first half and had since slipped back even further. John Longworth, executive director of Asda, the supermarket chain, and chairman of the CBFs retail trades survey, said consumers were reluctant to spend because of higher fuel bills, the slowing housing market and a reluctance to take on more debt. He said the survey by the CBI, the employers' organisation, showed it was the fourth month in a row that volumes had fallen short of last year's levels despite the summer sales. "Margins are being squeezed further as prices are cut and fuel prices rise." The ONS unexpectedly revised down its annual growth rate for the second quarter from 1.8 per cent to 1.5 per cent, because of downgrades to back data for several sectors. It was the weakest rate of annual expansion since the first quarter of 1993. But the ONS left unchanged its quarter on quarter growth estimate of 0.5 per cent for the second quarter of the year after downward revisions to previous quarters. First quarter growth was lowered to 0.3 per cent from the previous 0.4 per cent. The unexpectedly slow growth rate raised expectations in financial markets of a further cut in interest rates. Most investors believe that the Bank of England is likely to cut rates once more by the spring. The official figures also showed that the savings ratio - the amount of disposable income people saved - rose to 5 per cent in the second quarter, from 4.5 per cent in the previous quarter. This was its highest level in two years and was due to incomes growth outpacing the rise in consumer spending. Economists believe that what happens to the savings ratio is the most important factor determining the course of the economy in the near future. If the ratio continues to rise growth will struggle to exceed 2 per cent in the next couple of years, economists say. But policymakers could take heart from the upward revision in household spending growth to 0.4 per cent in the second quarter from the previous figure of 0.2 per cent. Economists said that the weekend's informal downgrade by the chancellor of economic growth for this year to "slightly below" its 2.5 per cent trend rate - from 3-3.5 per cent previously - still looked optimistic. The economy would have to grow by an above-trend 1.5 per cent in the third and fourth quarters to achieve 2.5 per cent growth for the year. Even to achieve 2 per cent, it would have to expand by an average of 0.9 per cent in each of the remaining quarters. Competition on the high street and lower growth in consumer spending have increased number of retail collapses. This week Allsports went under, as did Furnitureland last week. Kaussner, the sofa specialist failed over the summer. Financial Times |