Britain sinks deeper into recession

Britain’s economy shrank far more than expected in the second quarter, battered by everything from an extra public holiday to government spending cuts and the neighbouring euro zone crisis.

Finance Minister George Osborne said figures released, on Wednesday, showed Britain had “deep-rooted economic problems,” adding that the slump in the second quarter was disappointing even when taking into account one-off factors that hurt. Britain’s gross domestic product fell 0.7 per cent compared with the first three months, the sharpest fall since the height of the global financial crisis in early 2009, the Office for National Statistics said. Output in Britain’s service sector — which makes up more than three quarters of GDP -- contracted by 0.1 per cent in the second quarter after growing 0.2 per cent in Q1 2012.

Industrial output was 1.3 per cent lower, while construction -- which accounts for less than 8 per cent of GDP — shrank by 5.2 per cent, its biggest drop since the first quarter of 2009.
The figures confirmed that Britain remains mired in its second recession since the start of the financial crisis, with the economy shrinking for a third consecutive quarter.

Sterling hit its lowest in nearly two weeks against the dollar after the data, and two-year government bond yields hit a record low on speculation that the Bank of England may have to provide more economic stimulus than expected.

The central bank has already embarked on another 50 billion pound programme of gilt purchases with newly created money to soften a grim economic outlook, but the dismal numbers boosted speculation that it may cut interest rates later this year.

Many Britons have reined in spending since the crisis and business are holding back investment. Business surveys have so far painted a less dire picture of the economy, and unemployment has been falling over the past few months, leading some economists to voice doubts about the official data.