Economy weakens as austerity measures kick in

7 Oct 10
Latest economic figures have shown a marked decline growth in the third quarter of 2010, with the onset of government austerity measures cited as a factor in slowing the economic recovery
By David Williams

7 October 2010

Latest economic figures have shown a marked decline growth in the third quarter of 2010, with the onset of government austerity measures cited as a factor in slowing the economic recovery.

Data released this afternoon by the National Institute for Economic and Social Research showed that growth for the three months up to September stood at 0.5% – less than half of the unexpectedly high figure of 1.2% for quarter two.

Research fellow Simon Kirby told Public Finance that although there were wider economic forces at work, the coalition government’s decision to cut spending in the current financial year was a significant factor.

‘This is the quarter where the retrenchment starts. It is on a muted scale – but it is effectively switching off the positive contribution that really is happening between the second and third quarters.

‘The plans in place from the previous administration were for real spending to continue to grow in the third and fourth quarters this year – with the austerity measures coming in, any sign of a positive contribution [from the government] has been removed for the third quarter.

‘These factors feed in to weaken growth in the third quarter.’

Kirby added that the fall in growth was not necessarily the beginning of new downward trend for the economy, but a sign of the ‘choppy recovery’ predicted by ministers and Bank of England Governor Mervyn King.

The slowing in growth was not yet enough to force the Office for Budget Responsibility to revise its forecasts for the year, Kirby added. This was because the OBR had not anticipated the relatively strong second quarter performance, meaning its predictions for the year as a whole were still broadly on track.

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