Slow but still growing

The UK economy grew by only 0.2% in the second quarter of 2011, with this slow rate of GDP growth blamed partially on the additional bank holiday in April.

Gross Domestic Product (GDP) grew by 0.2% between April and June, down from 0.5% in the previous quarter.

This is a preliminary forecast which could be revised in either direction over the coming months as more data is made available to the Office for National Statistics (ONS).

The ONS explained that other one-off factors, including the Japanese tsunami, had also contributed towards slower growth.

Record warm weather in April was also blamed for this slowdown. This explanation is bound to attract criticism from some commentators after the government was keen to blame cold weather for causing an economic contraction in the final quarter of last year.

These latest figures reduce the likelihood of the Office for Budget Responsibility prediction of 2.6% economic growth in 2011 being met.

Looking at where this 0.2% came from in the second quarter, the services sector made the biggest contribution with growth of 0.5%. This sector now makes up more than three-quarters of the UK economic output.

Inflation has been blamed for creating a drag on economic growth as it is leaving households with less disposable income each month. As a result, consumers are less willing to spend.

It is important to remember that the economy and markets are not always closely correlated, particularly over the short-term.

Looking specifically at the UK stock market, most of the revenues for companies on the FTSE 100 index of leading UK company shares come from outside of the UK. For this reason, sluggish economic growth in the UK should not necessarily deter investors.

Photo credit: Flickr/Martin Bamford