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."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions