Business Secretary Vince Cable admitted that a “double dip” recession could no longer be discounted, while the Bank of England slashed its growth forecast for a second time. It originally predicted 2 per cent, then 1.8 per cent before amending this to just 1.3 per cent. Original predictions of 2.5 per cent growth for 2012 now look unrealistic.
Manufacturing, which was supposed to be the engine of export-led recovery, unexpectedly went into reverse in June causing alarm after GDP growth for the second quarter of this year was just 0.2 per cent.
Labour’s Shadow Chancellor Ed Balls called on Mr Osborne – who was unmoved by criticism of him for staying on holiday in the US during the turmoil – to “put economics before politics”.
Bank of England Governor Mervyn King was forced to acknowledge the increased risk of global recession caused by the turmoil in the US and eurozone economies as hundreds of billions of pounds worth of stock values were wiped out in recent weeks.
The Bank’s Monetary Policy Committee has already warned that the eurozone crisis could hurt demand for British exports while this country’s banks are exposed to Spain and Italy.
Mr King has been under pressure to resume quantitative easing – “printing money” – which can only happen with the Chancellor’s approval, but it is unclear just how well that would work, especially given the sluggish results in the US where the Federal Reserve is expected to announce a third tranche of similar measures.
Britain’s already disappointingly slow recovery – which Mr Cable said was down in part to banks not lending – shows signs of running into a so-called “perfect storm” of poor domestic demand, declining manufacturing – when sector growth was expected – and global uncertainty.
The unexpected slump in manufacturing output in June was especially unsettling because it did not take into account the most recent financial upheavals and because growth – not a reduction – had been widely expected. British factory output, which does not include utilities or oil and gas extraction, fell by 0.4 per cent in June, figures from the Office for National Statistics showed.
Industry surveys indicated activity growth steadily weakening since March, and July’s Purchasing Managers’ Index showed the first fall in the sector since 2009. The automotive sector was the poorest performer, followed by chemicals, paper and publishing.
The most recent import/export figures showed that the deficit on trade in goods and services grew from £4 billion in May to £4.5 billion. Exports of goods fell by £1.2 billion (4.8 per cent) to £24 billion while imports fell by £800 million (2.4 per cent) to £32.9 billion.
