The United Kingdom's economy was unchanged in Q2, weighed-down by the contracting housing sector and a pull-back in consumer spending, the U.K.'s Office for National Statistics announced Friday.Economists surveyed by Bloomberg News had expected the U.K.'s economy to grow 0.1% in Q2.
For the last 12 months, the U.K. grew at a 1.4% pace, the ONS said.
Further, the lack of growth in Q2 ended Britain's longest expansion in more than a century, London-based economist Mark Chandler told BloggingStocks Friday. The U.K.'s last recession occurred in 1991.
U.K. mirrors U.S. slowdown?
Further, as in the U.S., Chandler said concern is growing in the U.K. that declining housing sales and median home prices will serve as a drag on the U.K.'s economy through 2009, perhaps longer.
"Estimates vary in the United States, but I put housing's contraction effect at about 0.7-1.0% of GDP in the U.S., and perhaps a little lower in the U.K.," Chandler said. "Home equity loans were not as common during the housing boom as in the U.S., and that's why I don't think the slump will hurt as much here as in the U.S., but we're still seeing at least two quarters of negative growth, which will slow regional growth, as well."
Moreover, Chandler now expects the U.K. to record negative GDP of -0.2% to -0.5% in Q3, and -0.2% to -0.4% in Q4. Concerning the 15-nation euro-zone, Chandler expects euro-zone growth to slow, as well, to a growth rate of about 1.0%-1.3% for the second half of 2008.
Inflation not the major concern
Chandler said he expects the Q2 GDP report to provide further support for doves on the Bank of England to cut interest rates. The Bank of England kept its key rate the same at 5% during its August meeting.
"Inflation is not the major concern and it cannot be after this report," Chandler said. "The report indicates credit availability is getting worse and consumers are pulling back spending. Business investment is also sagging, so even though we do have a bit of a run [rise] with inflation, the greater risk is a recession, so interest rates should be cut."
Chandler added that he now expects two, consecutive one-quarter-point interest rate cuts by the Bank of England, one at each of its next two meetings.
In addition, Chandler said Britain's GDP slowdown to 1.4% growth mirrors slowdowns in the world's other major economies: the U.S. economy grew at a 1.6% pace during the same period, while the euro-zone grew 1.5%, and Japan's economy expanded just 1.0%.
"No question, a global slowdown is underway, which is all the more reason the Bank of England will cut rates. We need all major economy engines revving to get the free world's economy growing at an adequate rate again," Chandler said.
Economic Analysis: Bad news from the United Kingdom. Originally thought to be slightly less vulnerable to the housing sector's downtown than the U.S., from a GDP spin-off activity standpoint, the U.K. may be just as susceptible as the U.S., although the former's home foreclosure rate may be lower. Further, the U.K. slowdown should also help convince central bankers in the U.S. and E.U. that their interest rate easing needs to be coordinated and sustained, given the scope of the pull-back in commercial activity.
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