U.K. Economy Shrank by 0.8% in Q2

The U.K. economy shrank more than twice as much as economists forecast in Q2 as a record annual slump in construction, banking and business services kept Britain mired in the recession.

Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said. From a year earlier, the economy shrank 5.6 percent, the most since records began in 1955.

Prime Minister Gordon Brown’s Labour Party trails the opposition Conservatives in polls less than a year before an election as the recession drives up unemployment. Bank of England policy maker Andrew Sentance said yesterday that the British economy may start to pick up in the second half of 2009.

Today’s report is the first among the Group of Seven nations for the second quarter. The International Monetary Fund forecasts the U.K. will contract 4.2 percent this year, compared with 4.8 percent in the euro area and 2.6 percent in the U.S.

The data show the economy has now shrunk by 5.7 percent since the recession began last year. That compares with a total 6 percent slump in the recession period that ended in 1981, the statistics office said.

Construction fell 2.2 percent on the quarter and 14.7 percent from a year earlier, which was the biggest annual drop since records began in 1948. Business services and finance slumped 0.7 percent on the quarter and had a record annual decline of 4.4 percent, the statistics office said.

While the government has committed as much as 1.4 trillion pounds ($2.3 trillion) to revive lending and rescue banks such as Royal Bank of Scotland Group Plc, it hasn’t stopped joblessness from increasing. Unemployment in the quarter through May increased by 281,000, the most since records began in 1971. The jobless-benefit roll has reached 1.56 million, the most in 12 years.

Policy makers unanimously voted on July 9 to keep the key interest rate at a record low of 0.5 percent and said they will review the size of their 125 billion-pound plan to print money in August, when they publish forecasts on growth and inflation.

U.K. Economy Shrank by 0.8% in Q2

TradingEconomics.com, Bloomberg
7/24/2009 9:30:14 AM