Economic growth estimates to reveal pace of UK downturn

The pace of the UK’s economic downturn will be revealed today with the publication of the latest official growth estimates.

Most experts forecast that the economy expanded by just 0.2% in the second quarter of 2008, as mounting signs of a sharp slowdown prompt recession fears.

If the economists’ predictions are correct, this would be the UK’s slowest pace of growth since the first three months of 2005. A lower-than-expected 0.1% would be the worst performance for seven years.

The current woes threaten a record of 63 consecutive quarters of growth since the UK’s gross domestic product last shrank, between April and June 1992.

The figures come amid predictions of UK growth slowing to its weakest levels since the early 1990s between 2008 and 2010, according to the National Institute of Economic and Social Research (NIESR).

It says growth will fall to 1.5% this year – less than half 2007’s 3.1% - although it forecasts that the UK will escape a recession.

However, results from recent industry surveys have been far from encouraging. The keenly-watched CIPS purchasing managers’ indices suggest the UK service, manufacturing and construction sectors all contracted during June.

The British Chambers of Commerce has also warned the UK is “at serious risk” of recession – defined as two successive quarters of negative GDP growth – due to falling orders and rising costs tightening the squeeze on business.

The BCC has reported “alarming” declines from services firms in the second quarter of 2008 – a real concern as the sector accounts for more than 70% of the economy.

During the first quarter of the year, the Office for National Statistics (ONS) said growth was hit by weak service sector output, up only 0.3%.

The business services and finance sector saw its poorest performance for nearly five years as the credit crunch continued to take its toll. A rise of 0.4% in manufacturing output was meanwhile offset by falls in energy extraction and supply.

The ONS has revised downwards its annual GDP growth figure for the UK to 2.3% from 2.5% for the first quarter of 2008. Economists predict this will fall to 1.6% in the second quarter – again the lowest since the beginning of 2005.

Howard Archer, chief UK economist at Global Insight, said: “Data will only be released for the output side of the economy, and this is likely to reveal that the service sector achieved only very modest expansion while industrial production contracted significantly.

“We expect the economy to stagnate at best through the second half of 2008 and the early months of 2009 as consumers rein in their spending in the face of major headwinds and investment is pared back.”