UK economic growth expected to slow in 2002

The UK’s economic growth is expected to slow to about 1.5 per cent during 2002.

The latest figures from research group Cambridge Econometrics has predicted a further decline in manufacturing, led by a sharp fall in output in ICT industries.

Companies in the electronics industry face a weakening global economy and sharp reductions in global demand for ICT products and their components. Short-term output prospects in electronics look bleak. Cambridge Econometrics forecast that output in this sector is expected to fall by 9.5 per cent in 2002.

Manufacturing output, which has been in decline since the beginning of 2001, is expected to contract further in 2002. ICT industries, in which a downturn was already emerging because of past over-investment, are particularly exposed to the US recession, while commercial aircraft manufacturers are facing an unprecedented downturn in orders.

While expecting GDP growth to slow to about 1.5 per cent in 2002, well below the target set by UK Chancellor Gordon Brown, this still means that the UK economy is likely to be one of the fastest growing of the G7.

During 2002 households are expected to cut back on spending as unemployment edges up and also in response to very low current levels of saving.

Investment is also expected to fall by 0.75 per cent in 2002 as a decline in private sector investment is expected to be only partly offset by increased government investment.

Analysts expect that further weakening in world economic activity will see UK exports continue to fall, by 0.5 per cent in 2002. Import growth is forecast to slow from 2.5 per cent in 2001 to 1.5 per cent in 2002 as domestic demand growth is curbed and manufacturers’ demand for inputs weakens.

However, on the assumption that the US recession is short-lived and that growth in continental Europe also picks up, Cambridge Econometrics expect UK GDP growth to accelerate towards the end of 2002 and into 2003. (SP)