Economy freezes

The quarterly growth figures, published today, showed growth had dropped from 0.2% in the first quarter of the year, indicating the UK is on the brink of recession – with some industries already claiming to be affected.

The dominant services industries, which account for two thirds of the economy, increased by only 0.2%, while output for the production and manufacturing industries fell by 0.8%. Construction also dropped, by an estimated 1.1%.

"There can be little doubt that the construction sector is now firmly in recession,” said Howard Archer, chief UK and European economist at economic forecasting firm Global Insight.

"This reinforces our belief that the overall economy is more likely than not to contract in the second half of 2008."

Jonathan Loynes of economic research company Capital Economics agreed, saying the economic situation will only become 'considerably worse in 2009'.

As business confidence continues to shrink, the British Chambers of Commerce (BCC) put further pressure on the Monetary Policy Committee (MPC) to cut interest rates.

“Given the heightened threats of UK recession it is vital the MPC starts cutting interest rates in October or November, as soon as it is clear CPI inflation has peaked”, said David Kern, Economic Advisor to the BCC.

“The revised GDP figures confirm the Office of National Statistics’ original second quarter estimate was too optimistic,” he added.

The ONS received further scrutiny over figures released yesterday, when it was announced retail sales had unexpectedly risen by 0.7% in July.

© Crimson Business Ltd. 2008