UK Economy Will Remain Fragile For The Next Two Years

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Although Britain’s economy rose by 1% during the 3rd quarter of this year, recovery still remains fragile according to the official data released by the Office of the National Statistics (ONS) which showed the manufacturing sector barely growing for 2 months, from August to September. The data came after the release of unofficial surveys which showed that business conditions were tougher than economists had earlier predicted.

Market economist Chris Williamson believes that the data highlights how discouraging the economic trends are. According to the ONS data, manufacturing production only rose by 0.1% from August to September. This figure is 0.2% below the prediction of economists. As a whole, industrial production was reduced by 1.7%, with gas and oil extraction plunging by 20.9%.

It must be noted that industrial production increased by as much as 0.9% during the 2nd and 3rd quarters, which was about 1.1% less than the estimated growth by ONS. Nevertheless, the Office of the National Statistics claimed that the figures don’t affect the GDP estimate that much. The ONS data was released prior to the Monetary Policy Committee’s preparation to vote on the termination of quantitative easing.

According to IHS Global Insight Howard Archer, it is expected that the Bank of England will put an end to the stimulus package for now. However, it will only be temporary as there are signs that there will be a need for more stimulus packages in December or early next year. The ONS data also showed that 6 of the manufacturing subsectors fell while 7 rose. Transport equipment and pharmaceutical increased tremendously.

The National Institute of Economic and Social Research believe that the UK economy is experiencing depression because the expected output has not been reached. According to the Institute, today’s economy had already beaten the Great Depression in the 1930s. Although the country is no longer in recession, it is still weaker than usual. In a report by the ONS, UK experienced a recession relapse from September 2011 to June 2012.

The lukewarm economic recovery is primarily caused by weak exports, and spending cuts by companies, households as well as the government. According to National Institute of Economic and Social Research economist Simon Kirby, even if the output level peaked, it would still not be possible for many people to find the right jobs. Unemployment remains a problem throughout Europe.

Furthermore, a lot of people are underemployed and are working part-time. Kirby added that it will take some time before the United Kingdom can recover economically. He expects that the UK economy will return to normal after 2017. The Institute forecasts a growth of 1.1% and 1.7% for 2013 and 2014, respectively. Sustained recovery is also expected beginning 2015.

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