GDP figures expected to show the UK economy has slowed
- 26 July 2011
- From the section Business
UK growth figures published on Tuesday are expected to show that the UK economy slowed between April and June.
They may even show it contracted, some analysts forecast, after growth of 0.5% in the first quarter.
A weak figure from the Office for National Statistics will put pressure on the government to boost growth.
But Chancellor George Osborne has said that it is important for the government to stick to its economic plan "in a world of very great uncertainty".
"We have brought stability to the British economy, we have brought interest rates down and we are creating private sector jobs. That is all evidence that our economic plan is working and on track," he told a press conference.
One-off factors such as April's extra bank holiday for the royal wedding and the effects of the Japanese earthquake and tsunami in March could have affected growth, analysts warn.
The UK economy shrank by 0.5% in the final three months of 2010.
Even if the figure for the second quarter of 2011 is negative, it will still not mean a return to recession or the so-called double-dip.
A recession is commonly defined as two consecutive quarters of negative growth, and there would have been a positive quarter in-between the two negative ones.
"The UK economy might as well still be in recession, even if technically it isn't," said Nick Pearce, director of the Institute for Public Policy Research (IPPR).
"Outside of London, in particular, the recession continues to be felt."
The problem for the government is its plan for reducing the deficit relies on a certain amount of growth in the economy to increase the amount it raises through taxation and reduce the amount it spends on benefits.
"It is time for the chancellor to seriously consider a plan B for deficit reduction that puts growth and jobs first," Mr Pearce added.
Opposition politicians have been calling on Mr Osborne to reverse the rise in VAT that came into effect at the beginning of this year.
"Consumers and businesses have reined in their spending and investment plans as they anticipate spending cuts and tax rises which go too far and too fast," said shadow chancellor Ed Balls.
"The VAT rise in January has added to the squeeze on hard-pressed families and pensioners."
But some organisations, including the International Monetary Fund (IMF), have supported the government's policy despite the lack of growth in the economy.
The IMF said last month that the UK's high inflation and low growth had been unexpected but were largely temporary and that no changes to policy were yet needed.
The ONS has already published some of the figures that go into the second quarter GDP figures, which means there is a good idea of the picture in April.The index of services for April fell 1.2% compared with the previous month, which is very significant, because the service sector accounts for more than three quarters of the UK's gross domestic product.
The ONS said part of the contraction was due to the extra bank holiday at the end of April for the royal wedding.
But it was also the warmest April since Met Office records began, which "may have contributed to the growth in retail, hotels and restaurants and the transport sector", the ONS said.
Other parts of the economy also had a tough April, with the ONS Index of Production down 1.7% on the previous month and the Index of Manufacturing down 1.5%.
The ONS cited the problems caused by the Japanese earthquake and tsunami as one of the causes of April's declines, with UK car factories running short of components supplied from Japan.
The warm weather also reduced demand for fuel for domestic heating.
But both measures bounced back from those one-off factors in May, with production up by 0.9% and manufacturing up by 1.8%.
The Index of Production is a measure of the UK's manufacturing, mining, quarrying and energy production.