Economy still sluggish and future looks gloomy
Activity in the service sector – comprising some 70 per cent of the economy – dropped sharply in April, the Office for National Statistics reported yesterday. Coupled with fresh, subdued readings on consumer confidence and bank lending, economists said that growth may be slowing even from the sluggish pace it displayed in the first few months of the year.
In an ominous, but unsurprising, sign of further trouble to come, eurozone consumer sentiment fell again in June, the fourth month in a row to show a deterioration.
The Royal Wedding and extended bank holidays in April helped depress service sector activity by 1.2 per cent in April, more than cancelling out the 0.8 per cent rise in March. But such special factors meant the figures were widely discounted by analysts.
Nonetheless, from what can be gleaned about the underlying trends, the pace of recovery does appear to be slowing, with a growing disparity between realty and official forecasts. The Gfk/NOP consumer sentiment index showed another fall in June, wiping out most of the brief euphoria surrounding the Royal Wedding and leaving consumer confidence at its lowest since 2009.
The Bank of England said that mortgage approvals were virtually flat again last month, at 45,940 in May, slightly down from the previous six-month average of 45,957 and less than half typical pre-recession levels and those required for a healthy market. Consumer lending was up a little, possibly down to households borrowing to maintain living standards. There was little overall movement in the rates charged for most credit.
The Governor of the Bank, Sir Mervyn King, has in recent weeks stressed the importance of the effective interest rates paid by consumers and businesses in setting the Bank rate.
If, for example, those market rates moved sharply lower then, other things being equal, the Monetary Policy Committee might choose to raise the Bank rate to compensate for this simply to maintain the existing "stance" of policy. This might happen if money markets loosened up or there was greater competition, for example.
But there is no single notional rate that the Bank targets, and the various rates sometimes move in different directions, and sometimes because of technical factors. Thus in May the price of the new unsecured lending jumped by 48 basis points to just over 7 per cent, but this may have been to do with consumers taking on longer-term debt, rather than reflecting any significant change in underlying credit conditions.
Other market rates, as since the start of 2009, barely shifted. Given events in the eurozone and fears of a "second credit crunch", there seems little prospect that the commercial banks will see much easing in their ability to raise short-term funding.
More encouragingly, UK productivity edged up 0.1 per cent in the first quarter, though the disappointing recovery in this key indicator of economic vitality continues to trouble policymakers.
Scott Corfe, an economist at the analysts CEBR, said: "Access to credit remains considerably tighter than prior to the recession. Squeezed incomes and tight lending are leading to pain on the high street."
Oxford is the least affordable city in the UK, where houses cost 11 times local salaries
Swarm of killer bees sting woman 1,000 times
Malaysia Airlines Flight MH370: Oil slicks in South China Sea ‘not from missing jet’, officials say
Steve Irwin’s final words: Cameraman present at death opens up about deadly stingray attack for the first time
Oscar Pistorius trial: Athlete repeatedly throws up as court hears 'graphic details' of Reeva Steenkamp's autopsy
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
- 1 Oxford is the least affordable city in the UK, where houses cost 11 times local salaries
- 2 Australian man Rod Sommerville reacts to bite from deadly snake by reaching for cold beer
- 3 North Korea elections: Kim Jong-un wins 100% of the vote
- 4 David Cameron resorts to paying for Facebook fans because not enough people like him
- 5 Steve Irwin’s final words: Cameraman present at death opens up about deadly stingray attack for the first time
iJobs Money & Business
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£55000 - £70000 per annum + benefits: Pro-Recruitment Group: In-House Corporat...
£80000 - £100000 per annum + benefits: Pro-Recruitment Group: In-House Opportu...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...