Osborne’s great Budget dilemma

British growth is booming – but manufacturing is stalling

BRITAIN was the fastest-growing major economy in the developed world at the end of last year despite a worrying slump in industrial output, figures showed yesterday.

Gross domestic product – the total size of the economy – grew by 0.5pc in the final three months of 2015, according to the Office for National Statistics.

That was faster than any other country in the Group of Seven major economies. But it was entirely reliant on the dominant services sector as the crisis gripping British industry took its toll.

The report piled pressure on George Osborne to use next month’s Budget to breathe life back into struggling sectors such as steel and North Sea oil.

The Chancellor of the Exchequer has warned that Britain faces a ‘dangerous cocktail of risks’.

Andrew Wilson, at financial planning firm Towry, said: ‘The UK economy remains in overall good health, although desperately unbalanced.’

The ONS report showed the services sector rose 0.7pc between October and December.

But industrial production fell 0.5pc, construction was down 0.4pc and factory output was flat. The British economy crashed 6.1pc during the ‘great recession’ of 2008 and 2009 but is now 6.7pc bigger than before the crisis struck.

As the graph shows, the recovery has been led by the services sector, where output is 11.6pc above the pre-recession peak. Construction output is still 4.1pc below where it was at the start of 2008 while factory output is down 6.5pc and industrial production 9.9pc.

ONS chief economist Joe Grice said: ‘Once again, the buoyancy of the services sector has offset the relative sluggishness of the rest of the UK economy.’

The report also showed that while household spending rose by 0.7pc in the final quarter of last year, much-needed business investment fell 2.1pc and exports fell 0.1pc.

The figures were a further setback to hopes that the economy can rebalance away from spending towards investment and trade.

Chris Williamson, chief economist at Markit, said: ‘We need to see business investment revive, which will only happen when business confidence lifts higher again.’

The economy grew by 2.2pc in 2015 and 2.9pc in 2014.

The Office for Budget Responsibility, the official Treasury watchdog, could downgrade its forecasts for the coming years in the Budget on March 16.

Weaker-than- expected growth could knock the Chancellor’s plans to balance the books off course.

Borrowing hit a record £154.7bn in 2009-10 but was down to £91.9bn last year.

However, Osborne is struggling to hit his borrowing target of £73.5bn this year and could be forced to raise taxes or cut spending to reach his goal of running a surplus in 2019-20.