It's official - the economy is in trouble

With manufacturing on the brink of recession and many other sectors in a slump, even the boom in the City is beginning to cool off

IT'S CONFIRMED. Figures released on Thursday by the Office of National Statistics paint a clear picture of the economy slowing down. How far down and how fast is emerging as the issue.

The ONS figures showed that the economy grew at an annual rate of 2.6 per cent in the second quarter, down from a peak of 3.5 per cent in the third quarter last year.

The figures further confirmed that the manufacturing sector is, indeed, teetering on the brink of recession. Manufacturing shrank at an annual rate of 0.1 per cent during the second quarter.

If it shrinks in the third quarter it will, technically, be in recession.

Service industries, in contrast, grew at an annual rate of 3.6 per cent in the second quarter. "The City and telecoms are booming," said Barclays Capital UK economist Nick Vaughan. "But almost everyone else is in trouble."

Mr Vaughan believes the economy will bottom out next year just short of recession. He is forecasting the economy will grow 1.3 per cent in 1999. This is more pessimistic than the current Treasury forecast, which stands at 2 per cent.

Below is Mr Vaughan's sector by sector thumb-nail sketch of the economy. Graphs indicate the growth in each sector between the third quarter of 1997 - the peak of the current economic cycle - to 30 June.

This sector of the economy comprises the City, which is booming in spite of the slowdown in the economy as a whole. But even here things are cooling off. In the first quarter of the year average earnings were growing 13 per cent. This was the result of bonuses and the like. Those average earnings collapsed to 3 per cent in the second quarter.

This is the North Sea oil and gas sector, which is erratic. Without the upsurge in growthhere the economy would have been significantly worse. The upsurge is unlikely to continue. A Royal Bank of Scotland survey shows that revenues coming out of the North Sea are now at their lowest level since January 1983.

This is the telecoms sector, the internet and all that. But even this sector is coming off. It's also the transport sector and it indicates that fewer goods are being shipped.

This sector is way off. Its performance is worse than the economy as a whole. It shows how the corporate sector is thinking because hotel bookings are driven by companies. Hotel bookings are all about conferencing today. The graph here shows a sharp slide in corporate confidence.

Like North Sea oil and gas, this is an erratic sector. The use of utilities is driven by the weather. The improvement in this sector between the first and second quarter was another factor disguising how poorly the economy is performing overall.

There is a lot of added value in this sector. It's all about high-end machine-tooling and computer-assisted design. The numbers show that even this sector is coming under pressure as a result of the strong pound. The high profit margins, which initially protected it from sterling's strength and the Asian financial crisis, are gradually being eaten away.

This is the commodity chemicals business - people shipping tonnes of industrial chemicals, not lots of little units. Very thin margins. Think of ICI. The upsurge in the second quarter is surprising. I can't explain it.

A real collapse - fell by 2.6 per cent in the quarter. Housing starts were way off. Private housing starts in the three months to June were unchanged on a year earlier, but at the beginning of 1997 they were up 30 per cent. Homebuilders aren't stupid. They know that all the rises in interest rates are bound to undercut demand.

More decline. It's quite apparent that consumers are spending less.

These are the metal bashers. Nothing sophisticated; no added value. Orders of a hundred thousand nuts and bolts. British Steel. There has been a modest recovery - it's another mystery.

This is the coal industry - fuel industry. There's less demand for fuel. This is consistent with the picture of slowdown in the economy overall.

This sector is in a slump. Part of the problem is Asia. Thirty- eight per cent of textiles produced here are exported; 44 per cent of clothes as well. Nobody in Hong Kong is buying Saville Row shirts anymore. The UK can't compete with the Asians and their devalued currencies.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific