British Economic Recovery Likely To Be 'Feeble And Fragile', Says Leading Economist

Don't Get Excited; The Economy's Still Feeble, Economist Says

Britain is facing a "feeble and fragile" recovery, experts warned on Friday, ahead of figures expected to confirm the economy has exited the longest double-dip recession since the 1950s.

Gross domestic product (GDP) - a broad measure for the total economy - is predicted by City experts to have grown 0.6% between July and September, ending three consecutive quarters of declining output.

But the bounce-back in the third quarter was largely driven by one-off factors, such as clawed-back activity lost to the extra bank holiday for the Queen's Diamond Jubilee and a slight lift from the Olympics.

And according to Nicola Smith, head of the economic and social affairs department at the TUC underemployment is "one of the key explanations why employment and GDP are going in different directions."

"It's definitely one reason why living standards are squeezed. Inflation is outstripping pay is, for the last two years or more people have been experiencing real term pay cuts," she told the Huffington Post UK.

Economic indicators, such as purchasing manager surveys, suggest the manufacturing and construction sectors remained weak throughout the period, although the powerhouse services sector should deliver a robust performance.

Howard Archer, chief UK and European economist at IHS Global Insight, warned any recovery was "currently looking feeble and fragile".

"Looking through the distortions to GDP in the second and third quarter, the likelihood is that the economy is eking out limited growth," he added.

The economy shrank by 0.4% in the second quarter, according to the Office for National Statistics, which was revised up from an initial estimate of a 0.7% decline.

The economy has been battling against sluggish consumer spending, government spending cuts and high unemployment, while the struggling eurozone has hit exports.

While underlying growth is considered to be weak, analysts believe the early signs of recovery have been helped by lower inflation, recent gains in employment and an edging up of earnings growth.

The economy is also expected to continue growing in the fourth quarter from October to December but at a much slower rate, with predictions coming in around the 0.3% mark.

The Bank of England is expected to pump further emergency support into the economy next month through its quantitative easing programme, which hit £375 billion in July.

The Bank and the Treasury also launched the £80bn Funding for Lending scheme in a bid to unclog the flow of credit to Britain's households and businesses.

Archer added: "The UK still has a very tough job in developing significant sustainable growth given tighter fiscal policy, ongoing serious problems in the eurozone and generally soft global growth.

"In addition, there are still significant pressures facing consumers that are likely to limit the upside for their spending for some time to come."

Elsewhere, Jim O’Neill, chairman of Goldman Sachs Asset Management, said the UK's economic potential depended far more on how businesses ride the growth coming from China and the rest of the world’s newer economic powers.

Speaking at the Telegraph's Festival of Business event on Friday, O'Neill said: "It’s not really 'what about the [US] fiscal cliff', or whether Greece will survive in the eurozone or not. It’s what is going on in China, Brazil, Russia, India, and some of these other nations that are becoming so important to us as well."

Last year China’s growing economy created the equivalent of a new Greece every three months, he added. Together the BRICs – Brazil, Russia India and China – created the equivalent of a new Italy, the world’s eighth biggest economy, in just 12 months.


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