UK GDP figures show slower growth of 0.2%

Graph showing GDP growth since 2008

Growth in the UK economy slowed in the three months to 30 June, partly because of the extra bank holiday in April.

Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics, down from 0.5% in the previous quarter.

The ONS said growth had also been slowed by some other one-off factors, including the Japanese tsunami.

Chancellor George Osborne said the growth was good news, but Ed Balls accused him of choking the recovery.

'Safe haven'

"The positive news is that the British economy is continuing to grow and is creating jobs," said Mr Osborne.

"And it is positive news too that at a time of real international instability we are a safe haven in the storm."

But shadow chancellor Ed Balls said that the slowdown was a serious problem for the government and it should take steps to boost growth.

"These figures show that last year's recovery has been recklessly choked off by George Osborne's VAT rise and spending review," he said.

"The economy has effectively flat-lined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down."

George Osborne: ''Britain is a safe haven''

Mr Balls has called on the government to reverse the increase in VAT that took effect at the beginning of the year.

The think tank the Institute for Public Policy Research (IPPR) was also critical of the level of growth.

"Last June, the OBR [Office for Budget Responsibility] predicted GDP would grow by 2.6% in 2011, but even if the economy gets back on track in quarters three and four this year, it will barely reach 1.2%," said IPPR director Nick Pearce.

"Outside of London, in particular, the recession continues to be felt and the UK economy might as well still be in recession, even if technically it isn't."

Start Quote

The GDP number would be disappointing if expectations had not already been set so low.”

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The ONS highlighted a number of special events in the second quarter that may have affected the GDP figures.

They were: the additional bank holiday for the royal wedding, the wedding itself, the after-effects of the Japanese earthquake and tsunami, the first phase of Olympic ticket sales and the record warm weather in April.

The ONS estimated that without these one-off factors, GDP would have been 0.5 percentage points higher.

Not all of the one-off factors were negative. Warm weather in April, for example, boosted spending on hotels and restaurants, but reduced spending on domestic fuel.

Toyota production line in Derbyshire Some manufacturers were hit by a lack of components coming from Japan

Nonetheless, analysts say that the ONS statement that GDP would have grown by 0.7% without one-off factors is good news.

"Given the comments from the ONS, this is a better-than-hoped-for report, but with confidence remaining weak and household finances under major pressure the underlying trend remains subdued," said James Knightley at ING Financial Markets.

"Nonetheless, with firms still looking to hire and invest... we remain hopeful of a gradual acceleration in GDP growth over the next 12 months."

Analysis

For the chancellor these figures could have been worse.

Some economists had predicted a contraction in the second quarter, but the 0.2% growth figure was in line with market expectations.

The ONS said that, but for special factors such as the royal wedding bank holiday, growth might have been three times higher.

But nothing can disguise the fact that the UK economy has barely grown over nine months.

The GDP figure for the third quarter, out in late October, will be crucial.

Will it show a bounce back in activity or will it show the economy stagnating?

The answer to those questions will set the tone for political debate as autumn turns to winter.

The breakdown of sectors contributing to GDP shows it was a relatively strong quarter for the services sector.

Services as a whole grew 0.5% compared with the previous quarter, which is important because the sector makes up more than 75% of GDP.

Transport, storage and communication contributed particularly strongly to the growth of the services sector.

Production fared less well, contracting 1.4% from the previous quarter, with mining and quarrying down 6.6%.

Agriculture declined by 1.3% while construction grew 0.5%, recovering after two weak quarters.

"What seems to have driven this is a stellar bounce-back in services output after the Easter fall, but 0.2% growth is nothing to get the champagne corks popping," said Alan Clarke at Scotia Capital.

"The biggest drag on growth at the moment is inflation and that's eating into household disposable income and holding back consumer spending."

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