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1 June 2011

Three pieces of bad news for George Osborne

Manufacturing growth slows, confidence slumps and mortgage approvals hit a new low.

By George Eaton

A toxic combination of rampant inflation, stagnant growth and high unemployment means that the British economy is struggling to keep pace with its competitors. Here are three pieces of news from today which suggest that the situation isn’t likely to improve any time soon.

1. Manufacturing growth, one of the few bright spots in recent months, has slowed to its lowest level since September 2009 (see graph below). The UK manufacturing Purchasing Managers’ Index (PMI) posted 52.1, just above the netural 50.0 mark, the dividing line between growth and recession.

The decline is particularly troubling because a significant chunk of the 0.5 per cent GDP reading in quarter one was as a result of strong manufacturing growth of 1.1 per cent. As Rob Dobson, senior economist at Markit, notes: “The UK PMI suggests that manufacturing has moved from rapid expansion to near stagnation.”

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2. A new poll by Ipsos MORI found that just one in ten British consumers is confident about the economy, one of the lowest readings of any developed country. Economic confidence in Britain is lower than in all of the 23 countries surveyed, with the exception of France, Japan, Spain and Hungary. As a result, it’s no surprise that a new analysis by the Financial Times suggests that consumer spending will recover at a slower pace than in any post-recession period since 1830.

3. The number of mortgage approvals is now at its lowest level since records began in 1992, according to the Bank of England. At just 45,166, the number of approvals was 4 per cent lower than in March and 9 per cent down on April last year. The figures were undoubtedly skewed by the four bank holidays last month but the outlook for the property market is still poor.

All of which suggests that the second-quarter growth figures (published on 26 July) could be even lower than those for the first. A recovery that was already set to be weaker than those of the 1970s, 1980s and 1990s is now likely to be weaker still.