LONDON: Britain's economy shrank far more than expected in the second quarter, battered by everything from an extra public holiday to government spending cuts and the neighbouring euro zone crisis.
Finance minister George Osborne said figures released on Wednesday showed Britain had "deep-rooted economic problems", adding that the slump in the second quarter was disappointing even when taking into account one-off factors that hurt.
Britain's gross domestic product fell 0.7 per cent compared with the first three months, the sharpest fall since the height of the global financial crisis in early 2009, the Office for National Statistics said, showing a bigger drop than any of the economists surveyed in a Reuters poll last week had expected.
Output in Britain's service sector -- which makes up more than three quarters of GDP -- contracted by 0.1 per cent in the second quarter after growing 0.2 per cent in Q1 2012.
Industrial output was 1.3 per cent lower, while construction -- which accounts for less than 8 per cent of GDP -- shrank by 5.2 per cent, its biggest drop since the first quarter of 2009.
The figures confirmed that Britain remains mired in its second recession since the start of the financial crisis, with the economy shrinking for a third consecutive quarter.
The broad-based slump will fuel pressure on the government to get the economy growing again after a crisis that has left many Britons poorer with rising prices and higher taxes eating up meagre wage increases.
However, Osborne believes he has no money left for a meaningful spending boost, having staked his reputation on a tough plan to eliminate a budget deficit, still around 8 per cent of GDP.
The lack of growth also puts this goal into question. Sterling hit its lowest in nearly two weeks against the dollar after the data, and two-year government bond yields hit a record low on speculation that the Bank of England may have to provide more economic stimulus than expected.
The central bank has already embarked on another 50 billion pound programme of gilt purchases with newly created money to soften a grim economic outlook, but the dismal numbers boosted speculation that it may cut interest rates later this year.
"This is terrible data. Frankly there's nothing good that comes out of these numbers at all," said Peter Dixon, an economist at Commerzbank.
"The economy looks to be badly holed below the water line at this stage. It's a far worse period of activity than we'd expected," he said.
OLYMPIC REBOUND
Britain is due some kind of boost over the coming months as production looks set to rebound from the hit from the extra public holiday to celebrate Queen Elisabeth's Diamond Jubilee in June, and from the ticket sales and visitors' spending during the London Olympics that it is hoped will boost growth.
But the overall outlook remains poor. Many Britons have reined in spending since the crisis and business are holding back investment as the lack of demand and fears about the spillovers from the euro zone crisis weigh on confidence, with the lack of credit hurting smaller firms.
"There are a great many so-called 'zombie businesses' teetering on the edge and operating on fine margins, and many directors are becoming increasingly weary after several years of tough trading," said Julie Palmer of business recovery and restructuring specialist, Begbies.
But business surveys have so far painted a less dire picture of the economy, and unemployment has been falling over the past few months, leading some economists to voice doubts about the official data.
indiatimes.com
Finance minister George Osborne said figures released on Wednesday showed Britain had "deep-rooted economic problems", adding that the slump in the second quarter was disappointing even when taking into account one-off factors that hurt.
Britain's gross domestic product fell 0.7 per cent compared with the first three months, the sharpest fall since the height of the global financial crisis in early 2009, the Office for National Statistics said, showing a bigger drop than any of the economists surveyed in a Reuters poll last week had expected.
Output in Britain's service sector -- which makes up more than three quarters of GDP -- contracted by 0.1 per cent in the second quarter after growing 0.2 per cent in Q1 2012.
Industrial output was 1.3 per cent lower, while construction -- which accounts for less than 8 per cent of GDP -- shrank by 5.2 per cent, its biggest drop since the first quarter of 2009.
The figures confirmed that Britain remains mired in its second recession since the start of the financial crisis, with the economy shrinking for a third consecutive quarter.
The broad-based slump will fuel pressure on the government to get the economy growing again after a crisis that has left many Britons poorer with rising prices and higher taxes eating up meagre wage increases.
However, Osborne believes he has no money left for a meaningful spending boost, having staked his reputation on a tough plan to eliminate a budget deficit, still around 8 per cent of GDP.
The lack of growth also puts this goal into question. Sterling hit its lowest in nearly two weeks against the dollar after the data, and two-year government bond yields hit a record low on speculation that the Bank of England may have to provide more economic stimulus than expected.
The central bank has already embarked on another 50 billion pound programme of gilt purchases with newly created money to soften a grim economic outlook, but the dismal numbers boosted speculation that it may cut interest rates later this year.
"This is terrible data. Frankly there's nothing good that comes out of these numbers at all," said Peter Dixon, an economist at Commerzbank.
"The economy looks to be badly holed below the water line at this stage. It's a far worse period of activity than we'd expected," he said.
OLYMPIC REBOUND
Britain is due some kind of boost over the coming months as production looks set to rebound from the hit from the extra public holiday to celebrate Queen Elisabeth's Diamond Jubilee in June, and from the ticket sales and visitors' spending during the London Olympics that it is hoped will boost growth.
But the overall outlook remains poor. Many Britons have reined in spending since the crisis and business are holding back investment as the lack of demand and fears about the spillovers from the euro zone crisis weigh on confidence, with the lack of credit hurting smaller firms.
"There are a great many so-called 'zombie businesses' teetering on the edge and operating on fine margins, and many directors are becoming increasingly weary after several years of tough trading," said Julie Palmer of business recovery and restructuring specialist, Begbies.
But business surveys have so far painted a less dire picture of the economy, and unemployment has been falling over the past few months, leading some economists to voice doubts about the official data.
indiatimes.com
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