In the latest round of official figures to be released, Britain’s services sector is shrinking which is giving financial analysts greater fears that the country is quickly heading towards a double dip recession. During normal times the services sector is the backbone of the UK economy and only one other month this year such a slow rate of growth, April, and that was felt to be largely due to the royal wedding.
While it is true that government’s borrowing costs were at record lows last month, this is felt to be the result of investors seeking safe havens in fear of a second recession looming ahead. The chairman of the OBR (Office for Budget Responsibility) states that even the reduced forecast for next year’s growth is overly optimistic when being lowered from 2.5% to 0.7%.
This forecast was based on the expectations that the eurozone would rise out of their current struggles but this is not happening and is not expected to reach a resolution any time in the near future. If the EU is not able to get on solid footing within the near future, the UK stands to take a hit from the backlash. Greater uncertainty will result in the near future as consumers here and abroad lose further confidence.
Since 75% of the UK’s national production is attributed to the services sector and this sector has seen a significant drop, worries for a double dip recession are becoming increasingly predominant. Another sign of lower consumer confidence is in the fact that consumers are paying off debts at greater rates than they are borrowing. Even though this is the run-up to the holidays, consumers only spent £6/8 billion on credit but paid of an amount greater than £7 billion. As well, new mortgage approvals are down for the month as consumers are still struggling financially.