Recovery is losing steam
The much-vaunted economic recovery is a key boast for the current government, who never tire of telling us that it's proof that George Osborne's long term economic plan is working. Unfortunately, next time he takes this phrase for a spin he's likely to have to work a bit harder to prove his claim, because there are signs that this recovery is slowing down.
Factory output fell dramatically in July, and exports fell almost 10% to a six-year low, as key export countries in emerging and developed markets continued to struggle with economic issues of their own, and the strong pound put British products beyond the pockets of many.
Meanwhile domestic demand has failed to expand to fill the gap. The balance of manufacturers reporting output growth has dropped to its lowest level since the end of 2009, and at -2% is well below expectations.
The service sector is having a marginally easier time, especially as price inflation has dropped. However, growth in the UK service sector has slowed to its weakest rate for more than two years. When you add in the effect of the National Living Wage, which is expected to encourage companies to put up prices to pay for higher wage bills and make them think twice about recruitment, this could provide a further drag on growth.
What next?
The combination of concerns over the economy encouraged the Bank of England to leave interest rates alone this month. Given the fact that commentators have been making noises for months about potential rate rises, the decision not to tinker demonstrates that the Monetary Policy Committee is not comfortable that the economy is strong enough to withstand rising rates at the moment.
The official figures on growth during the summer won't be out until the beginning of next month. Economic growth up to the end of June was positive - with GDP rising 0.4% in the first three months of the year, and another 0.7% between April and June. However, this has been a long and turbulent summer, and we can expect harder times to show in the next set of official figures.
Of course, next time you hear Osborne on the subject, he's not going to dwell on this sort of thing. Positive growth in the first half of the year will help disguise any slowdown in the recovery for a few months to come, so as long as he sticks to annual figures and forecasts he can put a positive spin on the situation.
Unfortunately, it's not going to do anything to make the underlying reality any more positive.
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