Britain's manufacturing sector shifts into reverse

The feeble pace of economic recovery was confirmed yesterday in the latest Office for National Statistics data, which also showed Britain's industrial output fell in the second quarter of this year by more than feared.

As was widely anticipated, the initial ONS estimate of growth between April and June was confirmed at just 0.2 per cent, leaving the economy more or less "flatlining" since last summer. However, a revision to the figures shows that industrial output fell by more than was previously believed – 1.6 per cent against 1.4 per cent.

Overall, the growth rate is down from 0.5 per cent growth in the first quarter of the year. Compared with the same quarter a year ago, economic activity rose by just 0.7 per cent. It confirmed widespread survey evidence from the British Chambers of Commerce, the CBI and elsewhere that the manufacturing revival, which powered much of the economic expansion in the earlier part of last year, has switched into reverse.

While most economists still believe a "double dip" recession is unlikely, most also think the UK may stagnate for some time. Most have postponed their predictions for when the next rise in interest rates will be, with the consensus moving towards the middle of next year, and some are discussing the possibility of the Bank of England embarking on a further round of "quantitative easing", directly injecting money into the economy. Charles Davis, at the independent Centre for Economics and Business Research, said: "In the final analysis for 2011, domestic demand is likely to have been about flat. Given this, despite the high levels of inflation, we think that at least one additional member of the Bank's Monetary Policy Committee could join Adam Posen in voting for additional QE in September."

The ONS has reiterated its argument that special factors such as the Royal Wedding bank holiday suppressed growth. It says the underlying rate could be as much as 0.7 per cent. Even before allowing for that, the UK is ahead of France and Germany and only just behind the US.