No respite as recession deepens

By Alex Stevenson

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.

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

"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."

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 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.