Tuesday, 1 November 2011

Falling household spending is dragging the economy down, says TUC

Rob Johnston,
Midlands TUC Regional Secretary
Household spending has now been falling for 12 months and is a key drag on the UK's economic growth, the TUC says ahead of the first estimate of GDP growth in the third quarter of 2011 due to be published later today (Tuesday). Consumption in the second quarter of 2011 fell by -0.8 percentage points; the sharpest fall since early 2009, when the country was still in recession.
With wages rising at less than half the rate of inflation, public sector workers facing a pay freeze, and tax credit cuts, benefit reductions and increased VAT further reducing family incomes, the TUC expects household spending to be an even bigger drag on growth in the months to come.
Government expenditure (which made a contribution to growth of 0.26 percentage) and investment (which contributed 0.24 percentage points) just about kept the economy afloat in the last quarter, says the TUC.
Government spending was particularly crucial - showing its strongest growth since the end of 2008. But with the government's austerity measures now starting to bite, expenditure is now likely to fall and further depress output, says the TUC.
With consumer and business surveys showing confidence still falling, and the effects of the Eurozone crisis yet to fully show up in official data, there are fears that the UK's economic woes are getting worse rather than better, says the TUC.
With the 'so-called' economic recovery on course to be the slowest for nearly a century, the TUC is calling on the government heed the growing economic warning signs, reconsider its austerity programme, and create a new plan for growth that prioritises jobs and decent wages.
Midlands TUC Regional Secretary Rob Johnston said: "We all hope that tomorrow's GDP figures bring good news. But with consumer spending plummeting, cuts now starting to bite and exports increasingly weakened by the global economic situation, it's hard to see how the UK's economy can return to full health in the near future.
"Ministers need to take action to ease the cost of living squeeze as you can't build a sustainable economic recovery while people are getting poorer.
"The government must recognise the scale of our economic quagmire, review its austerity programme and introduce immediate measures to stimulate growth."

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