Economy shrinks at record annual rate in Q2

Grainne Gilmore

The economy shrank much more than expected in the second quarter to record an record annual decline, official figures show.

The dire figures have raised fears that the country may take longer to emerge from the worst economic downturn since the second world war than previously thought.

GDP tumbled by 0.8 per cent in the second quarter meaning the country has been mired in recession for five consecutive quarters.

Analysts had expected a fall of just 0.3 per cent, after a massive 2.4 per cent decline in the first three months of the year.

The annual rate at which the economy shrank in the second quarter soared to 5.6 per cent, the fastest rate since comparable records began nearly 55 years ago, and well above analysts’ expectations of a fall of 5.2 per cent.

Today’s figures are preliminary estimates from the Office for National Statistics, which could be revised up or down in the coming months.

The economy has now shrunk by 5.7 per cent since the recession begain in April last year, bigger than the downturn in the 1990s and close to the 6.4 per cent decline seen in the early 1980s.

Construction was particularly badly hit, with the sector shrinking at a record annual rate, the Office for National Statistics said. But the business service and finance sector acted as the biggest drag on the economy, falling by 0.7 per cent in the second quarter.

Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club said: “It does appear that recent hopes of recovery have run ahead of reality. With credit still severely restricted, consumers and businesses continuing to retrench and world trade yet to pick up, it is hard to see any grounds for sustained optimism at the moment.”

The weaker than expected performance of the economy has strengthened calls for the Bank of England to boost its scheme of quantitative easing (QE) in a bid to help drag Britain out of the recession.

The Bank’s Monetary Policy Committe surprised the markets earlier this month by opting not to expand its £125 scheme of QE.

David Kern, Chief Economist at the British Chambers of Commerce (BCC) said:

“There is no room for complacency and suggestions of suspending quantitative easing are misguided. It is important to persevere with an aggressive policy stimulus to ensure that the economic downturn does not worsen.” (Grainne Gilmore, The Times)

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