Economy shows little sign of recovery

24 July 2009

The UK economy remained mired in recession in the second quarter although it contracted at a slower rate than at the start of the year.

Figures from the Office for National Statistics reveal the economy shrank by 0.8% in the second quarter of the year, its fifth consecutive quarter of contraction. This follows a contraction of 2.4% in the first quarter of the year.

This takes the annual rate of decline to 5.6% - the biggest since comparable records began in 1955. Furthermore this is more than double the drop seen in the recession of the early 1990s and almost reaching the 6.4% contraction seen in the recession of the early 1980s.

Analysts had been expecting a 0.3% drop after recent economic data pointed to a pick-up in many sectors.

But David Buik, markets analyst at BGC Partners, says this was optimistic: “I do not understand where the market picked that estimated number of -0.3% for second quarter. There have been no signs that the economy improved that dramatically, from -2.4% to 0.3%.

"[A fall of] 0.8% seems more than fair in the circumstances.”

Industrial production fell by 0.7% quarter-on-quarter although services output fell by a great-than-expected 0.6% drop with construction output down by 2.2%.

Vicky Redwood, economist at Capital Economics, says the quarter two contraction looks "shockingly bad".

She adds: "The figures firmly dash any hopes that the UK had already pulled out of recession. It still looks likely to be a long hard slog to get the economy back on track.” 

But Simon Denham, head of Capital Spreads, says the fall is still a "world away" from the 2.4% decline in the first quarter of the year. 

However, he does urge caution: "The figure has to be taken with a small dose of caution since it is just the preliminary release of a number of subsequent revisions."

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