UK economic growth rate now trimmed

OFFICIAL data published on Wednesday is expected to reveal slower economic growth in the three months to June, after UK construction growth was slower than previously thought. Weaker business confidence is also casting a shadow over the outlook for future growth.

The UK economy was originally seen expanding by 1.2 per cent in the second quarter but this could be trimmed to just one per cent following a sharp downgrade of construction growth in this period. The Office for National Statistics (ONS) cut its estimates to 6.8 per cent from 9.6 per cent quarter-on-quarter and also revealed that the sector contracted more than earlier reported in the first three months of 2010.

Although the ONS is expected to leave third-quarter quarterly growth at a resilient 0.8 per cent, the annualised growth rate could be trimmed from the previous figure of 2.8 per cent to 2.6 per cent, barring any other revisions to the components of GDP.
Business investment is expected to have recovered for a third successive quarter in the three months to September after spending was slashed in 2008/09 but recent evidence suggests this will not last.

UK businesses have lowered expectations for 2011 according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), which suggests that economic growth next year will be slower than forecast with companies reluctant to invest and back the recovery.

Business confidence has fallen to 11.9 from 21.5 since the third quarter of 2009, with the pace of decline accelerating.

Michael Izza, chief executive of ICAEW, said: “The steady decline in confidence over recent quarters reflects ongoing uncertainty about the UK economy over the next twelve months. Companies are still cautious to invest – a crucial factor in helping growth and creating a strong recovery.”

Although the BCM revealed continued improvement in companies’ financial results with business turnover, profit and exports all increasing in the fourth quarter, expectations for future growth have been revised as companies become more pessimistic about 2011. Expected turnover growth over the next 12 months dropped to 3.5 per cent in the final three months of 2010 from 4.9 per cent the previous quarter while forecast gross profit growth for the year ahead has also fallen to 3.3 per cent from 4.4 per cent.