UK: A GLOOMY FRONT HANGS OVER EUROPE'S GROWTH PROSPECTS.

UK: A GLOOMY FRONT HANGS OVER EUROPE'S GROWTH PROSPECTS. - Investment languishes as industry awaits an upturn in demand.

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Last Updated: 31 Aug 2010

Investment languishes as industry awaits an upturn in demand.

The latest CBI Industrial Trends survey shows a further decline in business confidence, with pessimists outweighing optimists by a balance of 11%. This reflects the downward trend in economic growth, which has slowed from an annual 4% in 1994 to a modest 2.4% in the third quarter of this year. Increased taxes, interest rates and weaker demand from the US have all played their part. In consequence, stock levels have built up.

The relative gloom is not confined to the UK. The chart (which adjusts different measures to a common scale) shows how, in France and Germany too, confidence has slipped back this year. Besides higher taxes and the US slowdown, the Germans - and to a lesser extent the French - are having to contend with the effects of a strong exchange rate. This fall in confidence bodes ill for growth across Europe warns Keith Wade, chief economist at Schroders. Investment plans in particular are likely to be curtailed as companies wait for an upturn in demand. Weaker growth will create further problems for governments seeking to bring their borrowing into line with Maastricht criteria.

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