UK economy 'slowed' in June to August, say economists

Car production at Toyota factory in Derbyshire
Image caption A recent report said UK manufacturing output fell sharply in August

The rate of growth in the UK economy slowed to 0.2% in June to August, the latest estimate from the National Institute of Economic and Social Research (NIESR) has said.

It added that if weakness persists, the Bank of England will likely announce more quantitative easing to help boost the economy.

The chancellor admitted on Tuesday that the economy had weakened.

George Osborne said short-term hopes had been revised down in recent weeks.

"We warned repeatedly that the recovery would be choppy," he said. But he added that he would be sticking to his deficit-cutting plan.

Under quantitative easing the Bank of England injects new money into the banking system to try to boost lending.

Weak figures

NIESR's forecast of 0.2% between June and August compares with an expansion of 0.6% between May and July.

But that 0.6% figure represented a bounceback from very slow growth in April due to the extra bank holiday and disruption to production caused by the Japanese earthquake, NIESR pointed out.

The latest official data from the Office for National Statistics, which is presented differently, showed that the UK economy expanded by 0.2% in the three months to the end of July, down from 0.5% in the first three months of the year.

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Media captionGeorge Osborne: "We can remain masters of our own destiny"

A number of recent independent reports have also suggested that the economy is struggling.

UK service sector output saw its biggest monthly slowdown in more than 10 years in August, said the Markit/Cips services purchasing managers' index.

This vast section of the economy includes everything from banks to restaurants.

Markit/Cips also said that manufacturing output in August fell to a 26-month low.

Meanwhile, the British Retail Consortium (BRC) said UK retail sales fell in August as weak consumer confidence and high inflation continued to dampen spending.

Labour has called for an emergency VAT cut to help boost retail sales, but the government has said such a move would only worsen the UK's budget deficit, which it is attempting to reduce.

Tax dispute

Last week the BRC also cut its growth estimate for the UK economy in 2011 to 1.1% from its previous 1.3%.

The government's Office for Budget Responsibility currently forecasts that the UK economy will expand by 1.7% in 2011.

However, that prediction was made in March, and is now widely seen as out of date.

On Wednesday, 20 high-profile economists called on the government to drop the top 50p income tax rate, saying it was doing "lasting damage" to the economy.

Two of the those who signed the open letter were former members of the Bank of England's rate-setting Monetary Policy Committee (MPC), DeAnne Julius and Sushil Wadhwani.

The chancellor has said the 50p rate on earnings over £150,000 - introduced by Labour - is only a temporary measure.

He has asked the Inland Revenue to check whether the 50p rate is an effective means of raising tax revenue.

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