Osborne to brief MPs as economic misery piles up

Chancellor George Osborne will use tomorrow's recall of Parliament over the riots to brief MPs on Britain's increasingly fragile economic recovery amid further data that suggest growth is faltering.

Mr Osborne will make a statement and answer questions in the House of Commons, after a week of stock market gyrations following the US credit rating downgrade and ongoing concerns over the eurozone debt crisis. The latest evidence on the performance of the domestic economy yesterday was also downbeat, with official data showing a shock contraction in manufacturing output in June.

The Chancellor faces a growing challenge to defend the £80bn of cuts the Government says are needed to bring the overweening public debt back into line. Mr Osborne faces calls to produce a convincing plan for boosting economic growth, after the most recent GDP figures showed an anaemic 0.2 expansion in the second quarter, prompting warnings of a "bumpy and uneven recovery" from the International Monetary Fund.

The Office for National Statistics'production index will not help the Chancellor. The figures published yesterday reveal a slide in Britain's manufacturing industries, which have so far led the economy's recovery from the 2008 banking crisis.

Manufacturing output was down by 0.4 per cent in June, the ONS said, confounding economists' expectations of a 0.2 per cent rise and taking output down by 2.1 per cent over the year since June 2010.

The June figures add up to a 1.6 per cent quarter-on-quarter contraction – suggesting performance may have been worse than was estimated in the national accounts, and raising the possibility that the second-quarter GDP figure could even be revised still further downwards.

Howard Archer, the chief economist at IHS Global Insight, said: "Although manufacturing output only accounts for 12.8 per cent of GDP, it was the economy's best performing sector in 2010 and early 2011 so its recent marked falling away is of significant concern."