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Worse than expected GDP figures as double dip deepens

THE UK economy has suffered negative growth for three quarters in a row, according to new figures.

GDP contracted by 0.7% in the second quarter of the year, confirming the UK remains in recession.

The contraction was significantly worse than the consensus among analysts which had predicted a 0.2% fall.

Construction sector output shrank by 5.2% in the second quarter, compared to production industries which fell by 1.3% and services by 0.1%.

However, the Office for National Statistics warned the extra bank holiday and the weather could have skewed the figures and the underlying performance of the economy could have been better.

Dr Brian Sloan, chief economist at Greater Manchester Chamber of Commerce, said the scale of the economy’s contraction has taken everyone by surprise.

He added: "Looking over the figures there is no good news and the construction sector’s woes continue. As a region, with the exception of construction, we remain confident that export demand and the recent increase in employment suggest that the North West is performing better than the nation as a whole.

"What these figures do show is that the Government and Bank of England have ignored our warnings that policy has left the domestic economy exposed and more should have been done to support growth, especially in the construction sector.

“Recent announcements on infrastructure have come at a time when the Government had no option but to act and raise grave concerns about the longer term plan to get the country back on a sustainable growth path or any attempt to avoid the permanent damaging effects of recessionary periods to an economy. Of course many will point to the extra Bank Holiday, but this does not account for such a poor performance this quarter.”

Keith Williams, head of financial services at investment bank Altium, added: “Last month we saw more QE pumped into the economy but there is a feeling that the Government is running out of levers to pull now. The latest Bank of England minutes reveal that MPC members are considering cutting interest rates again, yet they are already at an historic low.

"Despite that, we expect the second half of the year to be better, particularly because of the economic impact of the Olympics. However, one of the biggest dangers to the UK economy is that of the self-fulfilling prophecy. Consumers who read about gloomy GDP figures are less likely to spend their cash, businesses hold off from hiring people and banks limit lending to small- and medium-sized businesses. For that reason, any light at the end of the tunnel needs to be communicated well by the Government, Bank of England and business leaders."

Source: The Business

25 July 2012
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