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Economic output falls by 0.7%

UK economic output fell by 0.7% between April and June, indicating that the recession is deeper than previously believed.

This contraction follows a 0.3% drop in the first quarter of 2012, and was attributed largely to a sharp slowdown in the construction sector.

The Office of National Statistics said that this figures is only an initial estimate and may be revised in coming months.

Describing the figures as “little short of a disaster for the UK economy”, Richard Driver an analyst for Caxton FX said: “The government will surely have to adjust its austerity stance now and a clearer growth strategy must be put in place to get Britain back on track.

“The main drivers of the sharp contraction can be blamed on further declines in the UK construction, manufacturing and agricultural sectors.

“While we are expecting a mild recovery in the second half of the year, particularly in light of the Olympics, the risks of further contraction are increasing all the time.”

Keith Williams, head of financial services at international investment bank Altium: “Although the official data says the economy has shrunk again, the real picture remains unclear. The reality of the Queen’s Jubilee in the last quarter was that the UK lost a lot of work hours that would have added millions to GDP, notwithstanding the increase in consumer spending as a result of the celebrations.

“Last month we saw more QE pumped into the economy but there is a feeling that the Government is running out of levers to pull now. The latest Bank of Englandminutes reveal that MPC members are considering cutting interest rates again, yet they are already at an historic low.

“Despite that, we expect the second half of the year to be better, particularly because of the economic impact of the Olympics. However, one of the biggest dangers to the UK economy is that of the self-fulfilling prophecy.

“Consumers who read about gloomy GDP figures are less likely to spend their cash, businesses hold off from hiring people and banks limit lending to small- and medium-sized businesses. For that reason, any light at the end of the tunnel needs to becommunicated well by the Government, Bank of England and business leaders.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .