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Triple Blow For Uk Economy

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Triple blow for UK economy

• Public borrowing hits highest on record

• High street trading down 0.6% in May

• Bank lending to non-financial firms down 5.4%

Prospects of economic recovery in Britain were dealt a triple blow with news of weaker spending in the high street, a sharp drop in lending to businesses and the highest public borrowing on record.

Dampening recent speculation that ultra-low interest rates were bringing about a rapid revival in growth, the Office for National Statistics said trading in the high street was down 0.6% in May.

Weak demand for clothes and shoes during an unusually cold spring was the main factor behind a drop in retail sales which left them 1.6% down on their level in May 2008.

Meanwhile, the Bank of England reported that UK firms continue to be deprived of credit, despite the government's insistence that bailed-out banks should increase their lending to businesses. Bank lending to companies outside the financial sector dropped by 5.4% in April, the heftiest decline in nine years.

"Lenders report that demand for new credit continues to be constrained by weak investment intentions and businesses' desire to reduce debt levels," the Bank said. Lending in April was up 1.3% on the year, compared with an annual increase of 4% in the year to March and a 17.1% average during 2008.

Mortgage lending stood at £10.3bn in April, down slightly on the £10.5bn in March, but 58% lower than in April last year.

The pound fell on the foreign exchanges in response to the drop in retail sales and separate ONS data showing that the government was forced to borrow a record £20bn in May and was in the red by just over £30bn in the first two months of the financial year. Alistair Darling predicted in the budget that borrowing would rise to £175bn this year.

James Knightly at ING said the figures suggested that the full fiscal year deficit would be "pushing £190bn" for 2009-10, increasing pressure on the government to cut spending further and raise taxes.

Describing the figures as "absolutely dire" Howard Archer at IHS Global Insight said the chancellor would have a major battle in limiting borrowing to £175bn. "Whether or not he does hit his targets for this year, it is evident that further major fiscal tightening measures will be needed to get the public finances back to a sustainable state over the long term."

On retail sales, Archer said the extent of the fall "raises serious concern" about the state of consumer spending. "After a flurry of improved data and survey evidence on the UK economy, the marked fall in retail sales in May is a reality check that the UK economy is still in a very fragile state and serious obstacles remain to sustainable recovery."

He added: "We expect consumer spending to be muted for some considerable time to come, especially as unemployment seems set to rise significantly higher and earnings growth is muted, while some mortgage rates have actually risen modestly recently. This will limit growth prospects."

Only an idiot would think that we are on the way back up.

EDIT: Fixed link

Edited by cashinmattress

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