Hopes of economic recovery take double blow as GDP remains at 0.7%

Hopes of a broad-based recovery for the UK were dealt a blow today as official figures showed trade flat-lining and business spending falling steeply between April and June.

The Office for National Statistics left overall growth unrevised at 0.7% for the second quarter of the year, but the detail showed a bigger-than-expected 2.7% slide in business investment spending dragging down the economy. Net trade made no contribution to growth, but consumer spending rose 0.3%.

Lee Hopley, chief economist at manufacturers’ organisation the EEF, said the fall in business investment “again highlights the rebalancing challenge” for the UK economy. “But if confidence is beginning to return, we should expect business investment to follow,” she added.

Chancellor George Osborne hailed “tentative signs of a balanced, broad-based and sustainable recovery” earlier this month although many experts disagreed. The economy is expected to accelerate to a pace of around 1% in the current quarter following upbeat survey data but Rob Wood, chief economist at investment bank Berenberg, said: “The UK has not yet reached the nirvana of a broad-based recovery and there will be bumps on the road.”

Inventories also made a bigger contribution to growth than first thought, boding less well for growth in future quarters as firms eat into stockpiles rather than producing more goods.

Vicky Redwood, chief UK economist at Capital Economics, said: “The breakdown now looks a bit less favourable than before... there are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace.”

Disposable household income grew 1.5% against the first three months of the year — but this was largely put down to bonus payments being paid in April not March to take advantage of the Chancellor’s cut in the highest rate of income tax. The share of income put aside by households improved to 5.9% from 4.4%