Thinktank says Bank of England now unlikely to raise interest rates
The British economy remains weak despite growing by an estimated 0.7% in the first quarter of this year, the National Institute of Economic and Social Research has warned.
In the latest prediction that Britain's recovery from recession is faltering, the NIESR said the UK had probably only achieved "weak" average quarterly growth of 0.1% over the last six months. Robust growth since January had done little more than recover output that was lost in the final weeks of 2010 when heavy snow disrupted the economy, it said.
The thinktank said the fragile situation made it almost certain that the Bank of England's monetary policy committee will leave interest rates unchanged at noon on Thursday.
"This strong figure for the first quarter of this year is flattered by the economic impact of the adverse weather in the final quarter of last year," said the NIESR. "With the state of the recovery uncertain we expect the MPC to maintain the current monetary policy stance."
The latest industrial output figures also suggested that the economy is running out of steam, having initially rebounded strongly from last December's wintry weather. Figures from the Office for National Statistics showed a 1.2% drop in British industrial output in February. Manufacturing output was flat month-on-month, disappointing City analysts who expected growth of around 0.6%.
Labour claimed the data from the NIESR and the ONS showed the government's economic policies were not working.
"Our economy should not only be making up all the lost ground from the end of last year but growing strongly on top of that," said Angela Eagle, the shadow chief secretary to the Treasury. "But this disappointing forecast from NIESR would mean that over the last six months, and since George Osborne's spending review, the recovery has ground to a halt and our economy has barely grown at all.
"The decline in industrial output, record low consumer confidence figures and poor retail sales add to the concerns."
However, a spokesman for Osborne pointed out that the NIESR's forecast is similar to that of the independent Office for Budget Responsibility, issued alongside the budget. "The OBR's own growth forecasts are predicated on some choppiness in the recovery," he said.
Nida Ali, economic adviser to the Ernst & Young Item Club, was concerned by the lack of growth in the manufacturing sector in February, but cautioned against reading too much into a single month's figures.
"The results, when coupled with a sharp slowdown in the manufacturing PMI for March, suggest that strength in the sector may be faltering," Ali said.
Source: http://www.guardian.co.uk/business/2011/apr/06/british-economy-remains-weak
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