Perhaps the most worrying news in all this is that there is “slowing investment in capital projects by firms”, for this not only will affect those who use capital to invest but will destroy the seed corn of a recovery.
Note also towards the end of the ‘Headlines’ section the story of investors pulling funds out of Russia from the Financial Times.
Christina Speight ( aka Cassandra)
THE TIMES 22.8.08
Britain's economy grinds to a halt
Britain's economy is teetering on the brink of recession as official figures showed that output ground to a halt between April and the end of June. This is the weakest performance since 1992, the tail-end of the last recession, and will increase pressure on the Bank of England to cut interest rates to prevent a full-blown economic slump.
Official figures released this morning showed that output failed to grow at all in the second quarter, contrary to initial estimates showing that the economy grew by 0.2 per cent between April and June 30.
On the year, GDP was 1.4 per cent higher, revised down from an initial reading of 1.6 per cent and the weakest since the final quarter of 1992.
The downward revision came after grim news from the manufacturing and services sectors with surveys suggesting acitivity has contracted for at least three months in a row.
The stagnation of the economy raises the prospect of recession as businesses struggle in increasingly difficult conditions. A technical recession is defined as two consecutive quarters of falling output.
Mervyn King, Governor of the Bank of England, last week refused to rule out the possibility of a recession.
Earlier this week, the British Chambers of Commerce became the first industry body to warn that the UK would slip into a technical recession. It said that output would stagnate or fall in two of the next three quarters, raising the "distint possibility" of a recession. It added that the economic slump could cost 300,000 Britons their jobs.
Economists said that the slump could extend into next year.
Jonathan Loynes, of Capital Economics, said: "The economy now looks set to grow by just 1.2% or so this year, with a very strong chance of a technical recession in the second half. And things will be considerably worse in 2009."
Britain’s services sector, which accounts for about two thirds of output, grew by just 0.2 per cent between April and June, the weakest growth since the end of 1995. Manufacturing output fell by 0.8 per cent on the quarter, while construction, which has suffered during the seizure in the housing market, fell by 1.1 per cent. Household spending also fell by 0.1 per cent compared with the first three months of the year.
Signs that businesses were battening down the hatches for tough conditions ahead became apparent yesterday as new official figures showed that business investment fell by more than £680 million between April and June as firms anticipated a drop in demand.
Total business investment fell to £35.8 billion in the second quarter, down nearly 2 per cent from £36.5 billion in the first quarter, although this was slightly up on the £35.1 billion investment in the second quarter of last year.
Investment by manufacturers fell by 5.8 per cent compared with the first three months of the year, while service companies, which account for nearly three quarters of the country’s output, cut their investment spending by 2.6 per cent in the same period.
The slowing investment in capital projects by firms sets the scene for slowing activity, raising the prospect of stagnant or falling output in the months to come.
Recent figures showed that overall activity in the services sector contracted for a third month in succession last month, according to the latest purchasing managers’ survey of its conditions, with key gauges of future conditions pointing to an even more severe deterioration ahead.
At the same time, official figures for manufacturing showed that its output tumbled by 0.5 per cent last month, in a fourth consecutive monthly fall that marked the sector’s first sustained run of decline since 2001, scuppering its still-fragile recovery
UK economic growth hits a brick wall
By Angela Monaghan
The British economy shuddered to halt between April and June, ending its longest stretch of economic growth for more than a century.
Gross domestic product did not grow at all in the second quarter, the Office for National Statistics revealed.
It ends a run of 63 consecutive quarters of growth in the UK and is the weakest data since 1992.
The news is a blow to Gordon Brown whose popularity is plunging as the economy heads toward its first recession since the early 1990s.
Economists believe a technical recession - where the economy contracts for two successive quarters - is now likely.
Jonathan Loynes, chief economist at Capital Economics, said: "The economy now looks set to grow by just 1.2pc or so this year, with a very strong chance of a technical recession in the second half. And things will be considerably worse in 2009."
The ONS revised down second-quarter growth to zero from initial estimates of 0.2pc after the economic slowdown hit the construction and manufacturing harder than thought. Economists had expected growth of 0.1pc.
Construction work has slowed dramatically in the UK, particularly housebuilding, and output fell by 1.1pc in the second quarter, more sharply than the initial estimate of 0.7pc.
Manufacturing output fell by 0.8pc, revised down from a 0.5pc fall, and initial estimates for growth in the services industry were halved to 0.2pc from 0.4pc.
The track record of continuous economic growth under the Labour government was until now one of its proudest achievements.
But the Bank of England has already slashed its growth forecasts, saying that the next year will be "painful" with zero growth and "the possibility of a quarter or two of negative growth".
The Bank's downward revisions will be embarrassing for Chancellor Alistair Darling, who is still forecasting that the flagging economy will muster growth of 2pc this year and 2.5pc in 2009.
The figures sent sterling plunging against the dollar and the euro as traders digested the news that the UK's economic downturn is deepening.
Today's news will intensify the debate on interest rates and increase the pressure on the Bank to start making cuts sooner rather than later to reduce the impact of the sharp slowdown.
Before the GDP numbers were released economists were forecasting that the first rate cut could come as early as November as inflation begins to peak.
Peter Newland, economist at Lehman Brothers, said: "We continue to expect a technical recession in the second half of the year and the MPC to respond with the first in a series of rate cuts in November. We judge that the risks of an earlier move have risen."
The Bank believes that as the economy contracts, inflation will start to fall, coming back to the Bank's 2pc target before actually falling below target within the next two years. [What? with oil on the ‘up’ again? -cs]
OTHER ECONOMIC HEADLINES 22.8.08
Buffett predicts game over for Fannie and Freddie
The Sage of Omaha says the mortgage giants of the US do not have any net worth but that they are 'too big to fail' - - - - - - - -the two mortgage giants face huge losses on the mortgage bonds, meaning that they will probably need a cash injection from the US Government to keep them afloat.
Halifax to close a quarter of its estate agents
Slumping housing market forces the UK's biggest mortgage lender to close 53 branches and cut 100 jobs
ECB warning to lenders
Central banks cannot serve as perpetual crutches.
Average debt of UK family hits £60,000
Recession fear for half the globe, says Goldmans
UK sees drop in Europeans seeking work
The number eastern and central Europeans registering to work in the UK has fallen to the lowest level since their countries joined the European Union four years ago
Britain loses appeal to Polish jobseekers
Unemployment is rising and the falling value of the pound means they have less money to send home even if they do find work
Little sign of eurozone growth recovery
Economic growth has shown scant sign of returning to the eurozone in August with private sector output contracting for the third consecutive month, an influential survey revealed on Thursday
Investors quit Russia after Georgia war
Investors pulled their money in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures show. Russian debt and equity markets have also suffered sharp falls
Too late to avoid a winter of discontent
Analysis: This reinforces fears that Britain's first recession in more than 15 years is inevitable