Economy shows little sign of recovery

Published by Rhian Nicholson on 24 July 2009.
Last updated on 24 July 2009

Economic slowdown

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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