British Economy Slows Amid Chinese and Global Downturn

With the exception of such sectors as agriculture and services, the overall economy contracted, partly stemming from sluggishness in the world economy, according to the New York Times.

The economy grew 0.5 percent in the third quarter, a slowdown when compared to 0.7 percent seen from the previous quarter. Economists expected at least 0.6-percent growth. The drop in growth may cause Britain’s central bank to think twice about raising interest rates in the near future.

With the exception of such sectors as agriculture and services, the overall economy contracted, partly stemming from sluggishness in the world economy, according to the New York Times.

The economy grew 0.5 percent in the third quarter, a slowdown when compared to 0.7 percent seen from the previous quarter. Economists expected at least 0.6-percent growth. The drop in growth may cause Britain’s central bank to think twice about raising interest rates in the near future.

On the surface, the latest results reveal a minor setback, but officials should be worried over the long-term. For one thing, the economy only grew 2.3 percent year-on-year in the same quarter, which is the slowest rate of growth since the same quarter of 2013. Analysts also expect Q3 data to mark the beginning of a sustained contraction that could have crippling ramifications for the economy, and the global dip will continue to have a negative effect on the British economy in the next few months.

Domestically, the purchasing manager’s index (PMI) indicates that the economy currently grows at a rate of 0.3 percent until the fourth quarter arrives, signaling that Q4 results could be worse than Q3. Experts mention that the economy is overly dependent on certain sectors, including spending and services.

Manufacturing Decline

Though the service sector boosted 0.7 percent, the construction sector dropped a whopping 2.2 percent, and manufacturing fell 0.3 percent during Q3. Other manufacturing sectors such as mining rose 2.4 percent, but the manufacturing dip has been noticeable for some time, and experts state that the manufacturing decline is the primary reason behind the lagging economy.

The manufacturing sector suffers from lethal combinations of slow demand from around the world, most notably China, and a weaker pound that prevents exporters from competing abroad. Manufacturing comprises 10 percent of the economy, notes AFP. The British economy expanded before the recession started, but construction and manufacturing failed to return to once-prosperous levels.

British Pay and Spending

With higher pay rates and even costs, many people with extra money in their pockets are paying off debts in the form of mortgage and credit card debt, while pumping additional money into the economy. However, the British people contend with a growing inequality problem, and despite rising employment levels, many people remain in unstable jobs that pay very little, cites the New Economics Foundation.

Those within the establishment try to tout a strong recovery in the U.K., but the economy continues to suffer from underlying problems that prevent more people from getting ahead, dragging the economy down in the process.