The British economy expanded by only 0.2% in Q2, its slowest rate of expansion since 2001. Growth was 1.6% year-over-year due to continued turmoil in finance and banking as well as sluggish expansion in manufacturing and construction.
Britain’s slump coincides with a similar downturn in continental Europe, where plunging levels of employment, consumption and business confidence are threatening to tip the Euro-zone into recession. So much for decoupling. U.S. multinationals are rapidly running out of markets to turn to for growth.
The economy faces the weakest performance since the early 1990s before an election Prime Minister Gordon Brown must call by 2010, the National Institute of Economic and Social Research said today. Higher credit costs and falling house prices have choked economic growth as accelerating inflation prevents the central bank from cutting the interest rate from the current 5 per cent.
“A recession is probable,” said Steven Bell, chief economist at GLC Ltd. in London and a former U.K. Treasury official. “We’ll get negative growth for the next two quarters. We’re now looking at quite deep interest-rate cuts next year.”