UK growth 'to slow to 1.5%'

Shoppers: Debt may limit spending power this year

Britain's economic growth will slow in 2002 as fears of rising unemployment cause consumers to spend less, hurting the vital retail sector, leading economists have said.

The UK economy will grow by about 1.5% this year, well below the target set out by Chancellor Gordon Brown in November, research firm Cambridge Econometrics said.

Meanwhile the manufacturing sector finished 2001 mired in recession, a separate report showed.

Britain's manufacturing output fell for the 10th straight month in December and at the sharpest rate for three years, according to the Chartered Institute of Purchasing and Supply (CIPS).

Manufacturers feel the pinch

Mr Brown has predicted the UK economy would grow at between 2.0-2.5% this year.

Consumer spending is critical for the health of the British economy, accounting for about two thirds of economic activity.

But although widely expected, the contraction in manufacturing paints "a dismal picture," said CIPS spokeswoman Melinda Johnson.

The CIPS Purchasing Managers' Index fell to 45.2 compared with 45.6 in November. Any number below 50 indicates contraction.

Many UK manufacturers are fulfilling new orders from existing stocks, Ms Johnson said.

Falling manufacturing sales reflected the weakness of global demand, CIPS said.

Job fears

More than a quarter of manufacturers questioned by CIPS shed staff in December - a finding that lends support to warnings that households may tighten their purse-strings.

Cambridge Econometrics cautioned that "During 2002 households are expected to cut back spending as unemployment edges up."

The boom in credit card spending could also lead to slower growth as consumers face up to debt.

Spending slowdown?

The survey expected "very low current levels of saving" to hamper shoppers' ability to spend.

Another recent survey of consumer confidence found that two thirds of British consumers were optimistic about the future, and the signs are that shoppers spent record amounts before Christmas.

The survey also predicted falling investment, exports and manufacturing output during 2002.

However, economic growth will accelerate towards the end of the year, it said.

Even at 1.5%, the UK economy is likely to be "one of the fastest growing" among members of the G7 group of advanced industrial countries, Cambridge Econometrics said.