Manufacturing slump forces cut in UK growth rate

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The UK economic growth rate was revised downwards yesterday as the manufacturing sector continued to suffer.

The Office for National Statistics said UK gross domestic product (GDP) rose by 0.6 per cent in the three months to June, compared with a previous estimate of 0.9 per cent.

The downward shift was widely expected and blamed on weakness in manufacturing where output fell by 5.3 per cent between May and June and by more than 0.7 per cent over the quarter. This represented an unprecedented sixth successive quarterly decline.

Sally Low, acting head of policy at the British Chambers of Commerce, called the revision "disappointing". "Manufacturing is still facing extreme pressures and earlier hopes of recovery were clearly premature," she said.

Most economists brushed aside fears of a manufacturing meltdown, saying the weakness in the figures was largely due to longer factory shutdowns over the Jubilee holiday. The sector had subsequently bounced back, they said.

There was a marked difference between the performances of the manufacturing and service sectors. Services output rose 0.6 per cent with a "healthy increase" in the retail, wholesale and motor trade areas. Growth in household expenditure rose to 1.2 per cent, fuelled by retail sales.

John Butler, at HSBC, said the data confirmed that the "recovery in the UK economy was well under way in the second quarter". However, the global outlook was more mixed. "While those global risks appear to be biased on the downside, rates in the UK are likely to remain on hold," he said.

David Page, economist at Investec, said rates could be cut if consumer spending weakened. "We are now pencilling a quarter-point rate cut in the fourth quarter," he said.

Attention will now turn to next week's Bank of England consumer credit figures as well as the Gfk consumer confidence survey. Both of these are expected to show consumer spending is still strong.

Of more importance is the industrial production figures in the first week of September. Last months' figures showed a shock fall but the scale of the expected recovery will be crucial for next week's interest rate meeting.