New estimates from the British Chambers of Commerce (BCC) signal a slowdown of the UK economic recovery in the final quarter of last year.
The BCC has estimated that the British economy grew by 0.4% to 0.5% between the period October to December 2010.
This represents a slowdown when compared to the official GDP figure of 0.7% for July-September.
The BCC estimates are based on a survey of their members, which found that this reduced growth was the result of weakness in the service sector. However, its members reported that manufacturing output continues to be strong, led by exports.
Commenting on the figures, the BCC said that a new recession was unlikely, but risks to the economy remain in place.
Does this apparent slowdown signal that we are heading towards a ‘double-dip’ recession?
With economic growth in the final quarter of last year being driven largely by exports, a major threat to recovery would be a slowdown in demand. Whilst demand from Asia and Emerging Markets, where the economies continue to boom, are likely to hold up for UK manufactured goods, demand from the euro zone could slow down as sovereign debt concerns continue to cause problems.
Here in the UK, the Bank of England faces some tough choices when it comes to interest rate policy over the next few months. They need to consider higher than target price inflation as well as this suggested economic slowdown before setting rates appropriately.
Whilst higher interest rates are unlikely to do much to bring inflation back under control, as it is largely due to temporary measures and ‘imported inflation’, they could do great harm to prospects for economic recovery.
We will need to wait to see the GDP Preliminary Estimate from the Office for National Statistics to confirm these BCC estimates are in line with the performance of the whole British economy, but they do point to a slowdown in growth which is sure to raise some concerns amongst economists and market analysts.
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