Slowdown in growth breaks Clarke's economic forecast

PAUL WALLACE

Economics Editor

Sluggish expansion in the economy in the fourth quarter brought the annual rate of growth down to its lowest for almost three years. The continuing slowdown meant that Kenneth Clarke has missed the forecast for growth in 1995 set out in last November's Budget.

Labour said the fall in the growth rate to 1.8 per cent, compared with the fourth quarter of 1994, highlighted the underlying weakness of the UK economy. "The Government's failure on the economy and especially on investment has stunted economic growth," Andrew Smith, shadow chief secretary, said.

But the Treasury said the fundamentals were still in place for a bounce- back in the economy. The Chancellor stood by his forecast of 3 per cent growth in 1996.

However, the 2.6 per cent growth in gross domestic product for the whole of 1995 compared with 1994 was somewhat less than the Treasury forecast of 2.75 per cent made at the end of last year, and well down on its forecast of 3.25 per cent made in the 1994 budget.

This first estimate of economic output for the whole of 1995 brought total growth since the trough of the recession at the beginning of 1992 to over 10 per cent. Since the earlier peak in the second quarter of 1990, output has risen by more than 6 per cent.

The sectors performing most strongly since the low point of the first quarter of 1992 were computer services and air transport, which have expanded by over 20 per cent. Business services and oil and gas extraction have grown by around 20 per cent.

Retailing and catering have grown in line with the economy as a whole, at about 10 per cent. Manufacturing has increased by less than average, with an 8 per cent pick-up in output. Construction has been the most notable weak spot. The insurance sector has also made no gains.

This pattern of growth in services and weak construction was also displayed in the quarter-on-quarter growth estimates. Overall, output grew by a meagre 0.4 per cent for the third quarter in succession, equivalent to an annualised rate of 1.6 per cent.

However, services, which account for almost two-thirds of the economy, grew by 0.7 per cent, a touch stronger than in the third quarter. Overall growth was dragged down by a further decline in construction, although less than in the previous three quarters, and flat industrial production.

Within services, growth was strongest in wholesaling and catering, which expanded by more than 1 per cent. Retailing grew by a little under 1 per cent. Business services, telecoms and recreational activities also posted healthy growth. However, insurance remained weak.

The question now is whether weak growth will persist in the first half of 1996. Today's industrial trends survey from the Confederation of British Industry will provide some clues. Last October there was a marked fall in business optimism, with a balance of 11 per cent of manufacturers saying they were less rather than more optimistic.