LONDON (Reuters) - The economy looks unlikely to pick up speed from the meagre growth rate of the second quarter as worried consumers cut back on spending and the global outlook turns gloomier.
With the government’s hands tied by tough austerity measures aimed at erasing a huge budget deficit, the onus to boost growth lies with the Bank of England, though a fresh round of monetary stimulus still looks unlikely for the time being.
The economy grew by just 0.2 percent in the second quarter, taking annual growth to 0.7 percent, the Office for National Statistics said on Friday, confirming preliminary estimates.
“The main concern is whether the soft patch will turn into something more protracted,” said Markit economist Chris Williamson.
“The business and consumer surveys indicate that growth most likely remained lacklustre in July and August,” he said, adding that he again expected an expansion of only 0.2 percent between July and September.
A number of special factors hit growth between April and June, including an extra holiday for the royal wedding and supply chain disruptions in the aftermath of March’s earthquake and tsunami in Japan.
The ONS said those factors shaved up to 0.5 percentage points off quarter-on-quarter growth and analysts expect some of this to be recovered in the third quarter.
But the slowdown in key UK export markets, riots in major British cities and a stock market slump have darkened the outlook for the economy and triggered speculation the Bank may opt to pump in more money to support growth.
Bank policymaker Martin Weale repeated his view on Friday that more quantitative easing was not warranted at the moment, though he also flagged the bank’s readiness to do more should the economy take a turn for the worse.
The central bank has indicated interest rates were likely to stay at their record low of 0.5 percent well into 2012.
The dominant services sector was the main driver of growth in the second quarter, but output fell by 0.1 percent on the month in June.
Industrial output fell by 1.6 percent, slightly more than first estimated and the worst decline since the first three months of 2009. Construction and services output rose by 0.5 percent.
The ONS will publish demand components such as consumption when it releases the final reading for the quarter.
Britons have cut back spending as rising prices and taxes along with slow wage growth eat into their budgets, while uncertainty about job security weighs on sentiment.
The spending slowdown is hitting retailers though John Lewis, bucked the gloom with another rise in weekly sales as it continued to win market share from rivals.