UK's stagnating economy is confirmed

The UK's economy failed to show significant growth over the past two quarters as household spending worsened, official figures confirmed today.

Gross domestic product (GDP) grew by 0.5% in the first quarter of 2011, according to the Office for National Statistics, which left its previous estimate of economic growth unchanged.

This means growth in the first quarter cancelled out a 0.5% decline in GDP in the final quarter of 2010, which was disrupted by heavy snowfall.

The figures revealed that household spending declined by 0.6% in real terms, its biggest drop since the second quarter of 2009 after consumers were squeezed by the failure of wages to keep pace with inflation. This follows a drop of 0.3% in the final quarter of 2010.

Business investment also declined 7.1% quarter-on-quarter, in its biggest fall for two years.

There was some positive news for the Government in its attempt to rebalance the economy to become less reliant on imports.

The deficit for net trade decreased to £5.7 billion in the quarter, from £11.5 billion the previous year, as exports increased and imports decreased. This was its biggest upwards contribution to growth from net trade since records began in 1955.

The sluggish pace of growth will prompt fresh criticism that the Government's austerity measures are damaging the economic recovery.

James Knightley, an economist at ING, said: "The only positive story in the report is the 3.7% jump in exports and the 2.3% fall in imports.

"Hopefully, this reflects improved UK export competitiveness from sterling's decline, while the plunge in imports is indicative of the weakness in domestic demand."

Today's figures confirmed that the construction sector declined 4% in the quarter, compared with a fall of 2.3% in the previous quarter. This was upgraded from initial estimates of a fall of 4.7%. It is suffering because of the poor performance of the housing market and a general lack of confidence to invest in new projects.

Industrial production, which includes manufacturing, mining and utilities, increased by 0.2%, in a slowdown on the rise of 0.8% in the previous quarter.

The services sector, which makes up some 75% of the economy, grew by 0.9%, compared with a decline of 0.6% in the previous quarter.

Chris Williamson, chief economist at Markit, said: "The consumer remains the weakest link - confirming the rather dismal picture of household morale portrayed by recent surveys.

"The ongoing downbeat mood among households in the second quarter, added to the slower growth of demand in export markets, suggests that economic growth will remain subdued at best."

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