A gloomy report from the EU has hinted that the UK could topple into a double-dip recession in the next six months.
But the report, entitled European Economic Forecast Autumn 2011, said the strong services sector in the UK had prevented the economy from contracting in the first two quarters of the year.
It added that the UK economic outlook had got off to a promising start, but had deteriorated significantly since the turn of the year, with output in Q2 just 0.6 per cent higher than in the same quarter of 2010.
“Much of this weakness can be traced back to household consumption,” the report said, which has contracted for four successive quarters, seeing households spend 6.4 per cent less in Q2 2011 than the pre-crisis peak of Q4 2007.
Continuing with the gloom, it said: ‘Overall economic sentiment has also declined sharply since May…on the output side, while the manufacturing sector’s strong recovery has faltered recently, services sector performance has strengthened during 2011, growing 0.7 per cent and 0.2 per cent in the first two quarters.”
But it is unlikely that the strong services performance will be maintained, the EU said.
“Confidence in the sector appears to have declined even more sharply than in the rest of the economy over recent months,” it claimed. “Domestic consumption and financial services exports also appear likely to remain subdued. Net exports and corporate investment remain the best hopes for a return to stronger growth.”
And obviously the continued eurozone crisis will cause continued weakness in demand, it added.
Summing up its bleak predictions, the report said: “In all, this yields to an uncertain outlook. The slowdown which began at the end of 2010 now looks more like a prolonged soft patch than a simple weather-related blip.
“Risks from the euro area sovereign debt markets and the banking sector heighten this uncertainty. As such, a contraction in GDP in at least one of the next few quarters cannot be ruled out.”
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