The Government and the Bank of England are relying on strong export-driven growth in manufacturing in 2011 to fill the gap created by cuts in government spending and belt-tightening by consumers.
Factory output also stagnated while oil and gas extraction dropped to its lowest level since summer 2009 although this was in part attributed to essential maintenance in the industry.
The ONS said industrial output shrank by 1.2 per cent in February after downwardly revised growth of 0.3 per cent in January. Economists had been predicting a 0.4 per cent increase.
Year-on-year, industrial output growth slowed to 2.4 per cent, its weakest since July 2010. The disappointing, and worrying, figures undermined what the Bank of England and the Treasury had hoped was good news from January and February Markit purchasing managers’ surveys of the biggest part of the British economy, the services sector, suggesting activity was at is highest for 13 months indicating an overall increase in economic output – including manufacturing – of 0.8 per cent for the first quarter of this year.
But even as Tories and Liberal Democrats taunted Labour’s Shadow Chancellor Ed Balls to acknowledge the Markit statistics, the Paris-based Organisation for Economic Co-operation and Development – which Chancellor George Osborne had hailed a fortnight ago as solidly endorsing his £110 billion deficit reduction plans – downgraded its economic forecast for the United Kingdom, again. It predicted growth of just 1 per cent for the three months to the end of June, compared with an average for the G7 leading economies of 2.9 per cent.
The OECD forecast came as tax and National Insurance changes kicked in which the Treasury said would benefit the “bottom 80 per cent of earners” or the very lowest paid. This was possible, said the Treasury, by widening the upper tax band to bring in more people. It said 1.7 million higher-rate taxpayers would only be worse off by an average of £210 a year.
But in a less widely reported but more sobering assessment of the true underlying nature of the economy, the Office of Budget Responsibility said it expects household debt to rise from £1.56 trillion in 2010 to
£2.13 trillion in 2015 – the expected end of this Parliament – marking a 36.3 per cent rise in five years.
Its examination of the debt-to-income ratio suggests the debt burden will shift from government – because of cuts – to households as it rises from 160 per cent of household income last year to at least 175 per cent by the next general election.
Meanwhile, Unite warned that tax increases, spending cuts and ever-rising prices as the economy contracts will cost households £2.3 billion this year. General secretary Len McCluskey said the Government’s “one-note” strategy meant there was a risk of “so-called Worse-Off Wednesday becoming Groundhog Day for millions of ordinary families”.
“This week, the Government was forced to heed the warnings that they were being reckless with the NHS. George Osborne’s economic policy is looking decidedly reckless, too. Unless this government has a serious rethink about its economic strategy, Worse-off Wednesday will become Groundhog Day reality for millions of ordinary people as living standards collapse.
“No pause, no U-turn – we just need a decent alternative to austerity which is about investment, growth and fairness”, said Mr McCluskey.
