By: Dr. Mike Campbell

Figures just released have shown that growth in the UK economy slowed in the second quarter of the year to just 0.2%, down from 0.5% in Q1. At least the UK economy is still growing, but the anaemic rate of expansion does not bode well for strong job creation “any time soon”, as they say.

The slowdown has been blamed, in some quarters, on the additional Bank Holiday which was granted on the occasion of the Royal Marriage, but since there are approximately 65 working days in a quarter, this is unlikely to be the full story. A more plausible explanation for the slowed-down pace of expansion is the knock-on effect of the Japanese earthquake and natural disaster. There is production of Japanese cars in the UK and the supply of components from Japan was affected by the natural disaster. Inevitably, the natural disaster will have caused a fall-off of UK exports to Japan as the nation struggled in its aftermath.

The UK put in place a number of austerity measures which were designed to reduce its level of sovereign debt, including a rise in sales tax (VAT). Inevitably, any measures which are designed to save the exchequer money are likely to have a cooling effect on growth since some money is effectively being taken out of the system.

Analysis of the second quarter GDP data shows that the service sector did relatively well, showing a 0.5% increase over the previous quarter’s level. With the death knell for UK heavy industry having been sounded in the 1980s, service sector activities now account for 75% of the UK GDP figure, so this was good news. On the other side of the ledger, industrial production contracted by 1.4% from the Q1 figure with mining and quarrying activities hard-hit, falling by 6.6% over the first quarter level.
Agricultural output was down by 1.3%, but the construction industry managed to post growth of 0.5%, reversing the trend of the previous two quarters.