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
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee