Fears over the strength of Britain’s recovery are growing, with City economists cutting their forecasts for growth in the second quarter.
The Office for Budget Responsibility (OBR) still expects GDP to grow by as much as 1.7% this year, but City forecasters now believe the economy will expand by as little as 0.3% between April and the end of June and may slow further in the months ahead.
Howard Archer at IHS Global Insight said: “The latest surveys suggest the economy grew by no more than 0.3% quarter-on-quarter in the second quarter.
“Indeed, we believe that there are significant downside risks to this forecast because of the hit to economic activity in April due to the extra public holiday from the royal wedding, the late Easter and good weather.
Archer said it seemed many workers took time off, triggering a plunge in the output of the services and manufacturing sector. “There is growing evidence the soft patch is continuing,” he said.
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The average forecast among more than 30 independent economists is that GDP will grow 1.5% this year. A month ago, the forecast was 1.6%. George Osborne’s public spending plans rely on OBR forecasts that the economy will grow by 1.7% this year.
HSBC and Morgan Stanley expect the economy will grow by only 1.2% this year.
The Bank of England’s monetary policy committee is expected to keep Bank rate on hold at 0.5% this week. The European Central Bank, however, is scheduled to raise interest rates. In April the Europeans increased the cost of lending by 25 basis points to 1.25%, the first hike in two years.
David Kern at the British Chambers of Commerce said: “The current economic environment supports the case for maintaining interest rates at their current low level until at least the fourth quarter.”
• A €12 billion emergency loan payment to Greece was approved last night by eurozone finance ministers, easing immediate fears of a sovereign debt default. The handout — part of last year’s €110 billion bailout from the EU and the International Monetary Fund — was sanctioned after Athens finally approved austerity measures.