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Britain's poor economic performance blamed on Royal wedding, unseasonal warm weather and Japan tsunami

posted 26 Jul 2011, 05:42 by Sam Mbale   [ updated 26 Jul 2011, 05:46 ]
Britain's royal wedding, a sunny spring and the after effects of the Japanese quake and tsunami hold back the country's economy, according to government officials compiling the UK's second-quarter GDP figures.

LONDON, ENGLAND, UNITED KINGDOM -  Britain's economy barely grew between April and June as industrial output shrank, casting doubt over the government's ability to erase the budget deficit as planned and raising pressure on the finance minister to boost growth.

The Bank of England is seen holding interest rates at their record low for at least several more months given the weakness of the economy and Tuesday's data may keep debates about the need for further monetary stimulus alive.

Britain's gross domestic product grew by 0.2 percent in the second quarter compared to the first, which took the annual growth rate to 0.7 percent, the lowest since the first quarter of 2010, the Office for National Statistics said on Tuesday.

The ONS said special factors such as the additional holiday for the royal wedding, the after-effects of the tsunami in Japan and the record warm weather subtracted up to 0.5 percentage points of quarterly growth in the second quarter.

Overall industry output fell 1.4 percent on the quarter, dragged down by a 6.6 percent slump in mining, quarrying and oil and gas extraction output. Manufacturers recorded a 0.3 percent fall in output while construction grew 0.5 percent.

The service sector expanded by 0.5 percent, driven by growth in transport, storage and communication as well as business services.

"These figures were affected by a range of special factors, which are set out in the bulletin: there was the royal wedding; there was the bank holiday -- public holiday -- associated with the royal wedding; there were the after effects of the Japanese tsunami and also the effects of record warm weather in April, as you may recall. The effects of these different special factors do go in different directions and are subject to a high degree of uncertainty, but our overall and illustrative analysis suggests that they may together have subtracted around half a percent of GDP from the figure which would have otherwise occurred," ONS Chief Economist, Jim Grice said.

The sluggish economy is adding another headache for the conservative-led government, already under pressure from public scrutiny of politicians' ties to Rupert Murdoch's media empire in the wake of a phone hacking scandal.

Britain's opposition Labour party as well as business lobby groups have called for emergency tax cuts to boost the economy.

The government has left little doubt about its commitment to the deficit reduction plans, but a prolonged weakness in growth may put its goal erase the deficit, which stood at around 10 percent last year, at risk.

Economists expect the government to keep up its austerity drive as the risk of failing on its own goals looms large.

The Bank of England has warned that Britain faces tough times ahead and discussions about a fresh round of asset purchases have intensified over the last couple of months among policy makers, who have kept interest rates at a record low of 0.5 percent for nearly 2-1/2 years now.