No respite as recession deepens

Britain's double-dip recession is now the longest since records began in 1955
Britain's double-dip recession is now the longest since records began in 1955
Alex Stevenson By

Britain's economy shrank by an unexpectedly bad 0.7% in 2012's second quarter, making this the worst double-dip recession in over half a century.

Economists, who had suggested the economy would only shrink by 0.2%, admitted surprise that the contraction was much worse than they had anticipated.

Joe Grice of the Office for National Statistics said the estimate could be revised, pointing to the Jubilee bank holiday in June as an unusual occurrence.

He told journalists the economy's "underlying performance was somewhat better" than it appeared, because of the extra bank holiday and poor weather.

The contraction of gross domestic product (GDP) in April, May and June follows negative growth of 0.3% in the first three months of the year and 0.4% in the last quarter of 2011.

The dominant services sector, which accounts for two-thirds of the overall economy, fell by 0.1%.

Construction and manufacturing sectors both saw downbeat surveys in recent weeks. Today's figures showed they shrank by 5.2% and 1.3% respectively.

"These are very disappointing figures. They show there has been a lack of growth in the first half of 2012," CBI director-general John Cridland said.

"When I talk to businesses on the ground, however, the overwhelming view is that right now the economy is flat rather than negative, and there is potential for Britain to get back into growth later in the year."

Not since quarterly records began in 1955 has a double-dip recession lasted for nine months, underlining the bleakness of Britain's current position.

Shadow chancellor Ed Balls said the "shocking figures" confirmed that David Cameron and George Osborne's economic plan had failed.

"If these figures don't make the chancellor wake up and change course, then I don't know what will," he commented.

"Thank goodness the Olympics will give our economy a much-needed shot in the arm.

"But this short-term boost is not enough – we need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity."

Initial indications from Whitehall suggested that the coalition was not seeking to blame specific events for economic setbacks, however, and were instead accepting that the situation is extremely bad.

Experts believe the final figure for this quarter's growth will actually be even worse, as the preliminary number only covers output. Falling consumer spending could make the contraction even worse.

"The government's austerity strategy is failing so spectacularly that is has wiped out the recovery completely," TUC general secretary Brendan Barber said.

"Ministers cannot just repeat the same old excuses – Europe, bank holidays and the previous government – for the economic mess they are presiding over. They need to change course as their policies are causing permanent damage to our economy."

The IMF recently predicted UK GDP would be 0.2% for 2012 as a whole, but some analysts are warning the economy could shrink for the calendar year.

A fourth quarter of recession seems unlikely, however, as the Olympic Games gives the economy a boost and inflation continues to fall back.


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