British GDP data set to show economic slowdown: analysts

26th July 2011, Comments 0 comments

Official data due Tuesday is set to show that the British economy witnessed a sharp slowdown in the second quarter due to weak real income, high prices and austerity measures, analysts said.

The Office for National Statistics will publish its first estimate for gross domestic product (GDP) for the April-June period at 0830 GMT.

Many analysts expect weak growth of around 0.1-0.2 percent in the second quarter compared with the previous three months, while some predict that GDP may even hit reverse gear.

The economy grew by 0.5 percent in the first quarter -- but that only offset a similarly-sized fall in the last three months of 2010, leaving activity broadly flat over the six month period and sparking fears of a double-dip recession.

Britain has been hit hard by the coalition government's painful public spending cuts and taxation hikes, and amid rising debt tensions in the eurozone, a key trading partner.

Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets, said the economy has been dented by the large "debt burden on households (and) weak real income ... but mostly it's austerity measures".

Britain pulled out of a record-length recession in late 2009 but the recovery has faltered amid high inflation and tax hikes introduced by the coalition Conservative-Liberal Democrat government that won power last year.

Economic activity was also hampered as consumers tightened their belts, major businesses slashed jobs and the manufacturing sector struggled to make headway.

"The main factor behind a low GDP figure is likely to remain squarely with the UK consumer who continues to struggle against the competing demands of paying the bills, rising prices, and any discretionary spending which is required to boost the UK economy," said CMC Markets analyst Michael Hewson.

"Given that the UK economy is still largely 70-percent services-orientated, it will continue to remain pushed and pulled to the whims of rising prices and consumer sentiment."

He added: "Given the parlous state of UK household finances, low GDP growth is likely to be the new normal for some time to come until the debt pile is pared down."

Although Britain is not a member of the eurozone -- which last week scrambled together a new Greek debt bailout -- the country has been rocked by its own deficit tensions, forcing its coalition government to slash public expenditure.

© 2011 AFP

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