UK economy in deep crisis, Vince Cable says

Waiter at a restaurant in central London
Image caption The service sector makes up the bulk of the UK's economic output

The UK economy is "in a very deep crisis", Business Secretary Vince Cable has told the BBC, refusing to be drawn on when growth would resume.

He said predicting when the economy would recover is "very difficult".

Business surveys this week have suggested that the economy will return to growth in the third quarter.

The latest Markit/Cips purchasing managers' index (PMI) for services, released earlier, found growth in the sector slowed during September.

But the findings suggested that the UK economy had barely grown between July and September, and was "near stagnation", said Markit, the research organisation which compiles the survey.

Speaking at the launch of an initiative to support fast-growing small businesses, Mr Cable said: "We are in a very deep crisis, quite unlike any we have experienced before because its centred on the collapse of the banking system."

"We are overcoming problems with a massive government deficit, difficult broken banks, levels of personal indebtedness. Projecting and predicting how we get out of this crisis is very difficult indeed."

The UK's economy dipped back into recession at the end of last year and has contracted for three quarters in a row. Official figures on how the economy fared the third quarter will be released by the Office for National Statistics later this month.

Jobs slowdown

Chris Williamson, chief economist at Markit, said: "GDP is likely to have grown by perhaps 0.1% as modest growth of services activity was offset by a slight drop in construction sector output and a steeper decline in manufacturing, according to the PMIs.

Media playback is unsupported on your device
Media captionSimon Walker: Business can do business with Ed Miliband

"Official data are likely to show a stronger GDP rebound, reflecting a technical bounce-back from second quarter weakness arising from extra Jubilee holidays, but the PMI provides an insight into the underlying trend of the economy, and... warns of near stagnation."

The PMI reading for services fell to 52.2 from 53.7 in August. A reading above 50 indicates expansion.

Earlier this week, similar surveys for manufacturing and construction indicated these sectors had contracted.

The service sector survey also found that staffing levels had dropped for the first time in 10 months, although there was some good news with new orders seeing the biggest rise since May.

"Overall, it is looking like the rebound in the economy expected in the third quarter is struggling to get any 'oomph' behind it," said Martin Beck, an economist at Capital Economics.

Stimulus measures

The Bank of England will announce on Thursday the outcome of the latest meeting of its Monetary Policy Committee (MPC).

The Bank is not expected to announce any change to interest rates, or to its programme of quantitative easing (QE), which is currently being expanded to £375bn after a further £50bn was added in July.

However, many analysts expect the Bank to take further action if the economy remains weak.

Minutes of the last meeting of the MPC showed some members thought more QE was "more likely than not to be needed in due course", while one member thought there was "good case" for more QE immediately.

Under QE, the Bank injects new funds into the financial system by buying government bonds, hoping to create beneficial knock-on effects for the economy.

Related Internet links

The BBC is not responsible for the content of external Internet sites