Scope for UK cuts as consumer boom fails to emerge
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Your support makes all the difference.The scope for another cut in UK interest rates was increased significantly yesterday after official figures showed no evidence of a developing consumer boom in the spring, writes Chris Godsmark.
Coupled with a Confederation of British Industry survey released today, which suggests inflationary pressures in manufacturing industry are non- existent, the statistics gave ammunition to the Chancellor, Kenneth Clarke, as he seeks to fend off calls for rate rises from the Bank of England.
According to the detailed breakdown of output data from the Office for National Statistics, consumer spending rose by just 0.7 per cent between April and June, lower than the 0.8 per cent increase between January and March. It follows figures on Wednesday showing an unexpected 0.6 per cent drop in retail sales in July.
Simon Briscoe, UK economist with Japanese stockbrokers Nikko Europe, said: "We have had a recovery during the year but these figures show it has been modest and weaker than most people had expected."
Another surprise was the small rise in the measure of income from employment. In the second quarter of the year it went up by just 0.2 per cent, after a 1.4 per cent increase in the first quarter.
Economists suggested recent falls in unemployment count have disguised a contraction in the size of the labour force. "Income growth has failed to pick up as companies shed jobs and people leave the labour market," said Mr Briscoe. "It suggests there is continuing nervousness in the consumer sector and still plenty of job insecurity."
The figures also point to a re-balancing of the pace of recovery back towards manufacturing, which has suffered a severe slowdown in growth since the early part of last year. Investment rose by 2.1 per cent between April and June, higher than economists had anticipated and up from 1.5 per cent in the previous quarter.
One factor behind relatively weak growth was that firms built up stocks of goods at a much slower rate in the second quarter.
However, Kevin Gardiner, an economist with investment bankers Morgan Stanley, said the general picture wasn't quite as weak as had been suggested. "If it hadn't been for falling stockbuilding, GDP growth would have been much stronger, at about 1 per cent in the second quarter," he explained.
The CBI's monthly manufacturing survey was more gloomy, showing that manufacturers still predict that their order books will shrink, though the negative balance of -10 per cent is the lowest so far this year.
Firms did not expect to raise prices at all for the second month in a row, a sign that last year's surge in commodity prices has passed through the economy with no lasting impact.
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