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UK growth falters

Aug 26 2011 11:59 Reuters

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London - The UK economy grew at just 0.2% in second quarter of this year as manufacturing output dropped, official data showed on Friday, confirming last month's first estimate.

The Office for National Statistics (ONS) also confirmed annual growth of 0.7%, as analysts had forecast.

The dominant services sector was the main driver of growth in the second quarter, but output fell by 0.1% on the month in June.

The ONS will only publish demand components such as consumption or investment when it releases the final reading for the quarter.

Growth in the second quarter was hit by a number of special factors, including the extra holiday for the royal wedding and supply chain disruptions in the aftermath of the earthquake and tsunami in Japan.

The ONS said that those factors shaved off up to 0.5 percentage points from quarter-on-quarter growth.

Industrial output fell by 1.6%, slightly more than first estimated and the worst quarterly decline since the first three months of 2009.

Construction and services output rose by 0.5%.

Many economists expect the special factors to unwind in the third quarter, leading to a rebound in growth, though the slowdown in key export markets, the riots in major British cities and the stock market slump have darkened the outlook for the economy.

Britons have cut back spending as climbing prices, higher taxes and slow wage increases eat into their budgets, while uncertainty about job security weighs on sentiment.

The Bank of England has cut its growth forecast for this year to just 1.4% and many analysts are even more pessimistic.

The central bank has indicated that interest rates were likely to stay at the record low of 0.5% well into 2012, and speculation has grown that it may have to launch a fresh round of asset purchases to support the fragile recovery.
united kingdom  |  gdp  |  eurozone
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