Britain awaits key growth data amid eurozone fallout

24th July 2011, Comments 0 comments

Britain on Tuesday discovers whether its economy managed to grow in the second quarter despite the impact of deep government spending cuts and rising debt tensions in the eurozone, a key trading partner.

Some analysts are predicting that gross domestic product (GDP) may have contracted between April and June as consumers tightened their belts, major businesses slashed jobs and the manufacturing sector struggled to make headway.

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 spending.

"The economy is likely to have eked out marginal growth at best in the second quarter and there is a very real danger that it could have contracted modestly," said Howard Archer, chief European economist at IHS Global Insight researchers.

According to HSBC bank, the market consensus is for GDP to have risen by just 0.1 percent in the second quarter compared with the first three months of 2011.

"I am expecting poor data which might confirm a double dip recession (on the horizon)," said Neil MacKinnon, an economist at financial group VTB Capital.

"If not, it will just show that the economy is stagnating."

Britain has been closely following rising debt strains in the eurozone. Deputy Prime Minister Nick Clegg last week warned that Britain had a "vital self-interest" in ensuring stability in the bloc.

"A break up of the single currency would have catastrophic consequences for millions of people across the EU, including in the UK," he said, shortly before eurozone leaders and private creditors agreed a second Greece bailout.

Greece was last week handed a 159-billion-euro rescue, risking a potential default in order to prevent the debt crisis from spreading worldwide.

"The heightened eurozone sovereign debt crisis is a serious ongoing threat to growth prospects" in Britain, said analyst Archer.

Additionally, "economic activity still seems likely to be limited as the fiscal squeeze increasingly impacts and consumers limit their spending in the face of serious headwinds, most notably the major squeeze on their purchasing power (and) slowing global growth threatens to weigh down on UK exports."

Although the economy grew 0.5 percent in the first quarter that only offset a similar sized fall in the last three months of 2010, leaving activity broadly flat over the six months.

Britain's economy 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 since gaining power last year.

Against such a backdrop, the Bank of England has held its key interest rate at a record low level of 0.50 percent since March 2009 and is forecast to maintain the status quo well into next year.

© 2011 AFP

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