UK mired in double dip, official data shows
The Office for National Statistics said gross domestic product fell 0.7 percent in the second quarter
By CFOWorld staff | CFO UK | Published 15:19, 25 July 12
The economy sank deeper into a double dip in the second quarter marking the sharpest fall since early 2009, causing a bigger headache for the government who were hoping for signs of an uplift.
Chancellor George Osborne said the country had "deep-rooted economic problems", as official data showed the economy was battered by everything from an extra day's holiday to budget austerity and the neighbouring euro zone debt crisis.
The Office for National Statistics said gross domestic product fell 0.7 percent in the second quarter, the sharpest fall since early 2009 and a bigger drop than expected.
The figures confirmed that Britain is mired in its second recession since the financial crisis, with the economy shrinking for a third consecutive quarter.
It will add pressure on Osborne to get the economy growing again after a crisis that has left many Britons poorer as rising prices and higher taxes ate up meagre wage increases.
Sterling hit its lowest in nearly two weeks against the dollar after the data, and government bond prices rallied on speculation that the Bank of England may have to provide more economic stimulus than expected.
Earlier this month the Bank announced another £50 billion programme of gilt purchases with newly created money to soften a grim economic outlook, but Wednesday's data is likely to add to market speculation that it may cut interest rates later this year.
Economists had been expecting an extra public holiday to mark Queen Elizabeth's Diamond Jubilee to reduce output by around 0.5 percent, so the latest figures suggest the economy is also contracting on an underlying basis.
The ONS said it was too early to provide an estimate of the Jubilee effect, but warned that this and very wet weather added "uncertainty" to its calculation of economic activity towards the end of the quarter.
Output in the dominant service sector contracted by 0.1 percent in the second quarter after growing 0.2 percent in Q1 2012.
Industrial output was 1.3 percent lower, while construction - which accounts for less than 8 percent of GDP - contracted by 5.2 percent, its biggest drop since the first quarter of 2009.
Overall second-quarter GDP was 0.8 percent lower than a year earlier, the biggest decline since the last three months of 2009.
Before Wednesday's data, most economists expected a return to growth in the third quarter, as the London Olympics offer a one-off boost through ticket sales and visitors spending.
And some argue that increasing employment levels suggest the economy is healthier than the headline GDP figures suggest.
But the overall outlook is poor. Last week the International Monetary Fund slashed its growth forecast for Britain by more than those for any other advanced economy, and warned the government and the Bank that they will need to rethink their approach if the economy fails to pick up by early next year.
Eliminating the structural budget deficit over the next five years is the central political goal of the Conservative-led coalition government, but the Labour Party says the pace is too rapid.
Over the past month the coalition and the Bank have announced several measures to ease the flow of credit to households and businesses, as the euro zone debt crisis saps demand in Britain's major export markets.
photo credit: Reuters
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