Recent UK economic developments

UK economic growth remained somewhat above trend during the first half of 2007, but slowed progressively to a below trend rate by the first quarter of 2008 (see Figure 1.1). Consumer spending growth generally held up well in the first quarter, but seems to have weakened since then as the effect of modest real disposable income growth, tighter credit conditions, a weakening housing market and depressed confidence levels have fed through.

Figure 1.1 - Quarterly GDP growth

The services sector has been the key engine of growth for many years, but banking and some other parts of the financial services sector have been hit by the effects of the credit crunch and retailing has also slowed more recently. Manufacturing output has been fairly flat recently despite the weaker pound.

The US economy has slowed markedly in response to the early weakening of the housing market, although it has not yet fallen into an outright recession. Euroland economic growth has also eased back recently, but the Asian economies have generally remained much stronger. Oil prices have remained very high and volatile, and food prices have also been rising rapidly. Overall, global growth is expected to be significantly slower in 2008-9 than in 2006-7 and risks are weighted to the downside given the combined impact of the credit crunch and rising commodity prices.