UK economy shrinks by 0.7%

25 July 2012

The UK plunged deeper into recession in the second quarter of this year, according to the latest official figures from the Office for National Statistics (ONS).

GDP fell by 0.7% in the three months to June, spurred by big falls in production and construction output, of 1.3 and 5.2% respectively.

The figures mark the third consecutive quarter that the economy has been in recession. In the final quarter of last year, GDP fell by 0.2%, while in the first quarter of 2012, the economy shrank by 0.3%.

As well as a weak construction sector, the ONS cites the Diamond Jubilee bank holiday as reason for the larger-than-expected drop in output, as it meant one fewer working day.

However, these figures are a preliminary estimate and the ONS could revise them up or down by 0.2%.

Vicky Redwood, UK economist at Capital Economics, says while other economic indicators, such as improved employment data, have painted a stronger picture of the UK economy; "the UK still faces significant obstacles, not least the knock-on impact of the renewed tensions in the eurozone".

Redwood adds: "Even allowing for a decent bounce-back in the third quarter, we still expect the economy to contract by about 0.5% this year and to grow by only 0.5% in 2013."

Richard Lloyd, executive director of Which?, says that the figures show that British consumers are now in the biggest financial squeeze since the 1920s.

He adds: "Four in 10 people said they planned to cut back on food spending in the coming months, and only 7% of people said they are willing to spend any leftover money they have. This growing reluctance to spend and the collapse in consumer confidence has severe implications for our economic recovery."

Add new comment