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UK economy continues to contract UK economy continues to contract
(30 minutes later)
The UK economy contracted 0.8% between April and June, more than double the figure economists had expected.The UK economy contracted 0.8% between April and June, more than double the figure economists had expected.
While an improvement on the previous quarter, the figures may indicate that the recovery could take longer than previously had been expected. While an improvement on the previous quarter, the figures may indicate that the recovery could take longer than previously had been thought.
The contraction was much less than the 2.4% seen in the first quarter but was still above analysts' 0.3% prediction.The contraction was much less than the 2.4% seen in the first quarter but was still above analysts' 0.3% prediction.
The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.
'Out of abyss''Out of abyss'
Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, said that the data showed that hopes for a recovery had run ahead of reality.Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, said that the data showed that hopes for a recovery had 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," he said. The bottom line was that today's number is pretty dire, and a sharp wake-up call for anyone who had already been dreaming of recovery Colin Ellis, Daiwa Securities class="" href="/2/hi/business/8164533.stm">Small firms help to drive economy
"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," she said.
The decline in economic output was driven by business services and finances, a sector that has been hit hard by the financial crisis.The decline in economic output was driven by business services and finances, a sector that has been hit hard by the financial crisis.
"We are clearly out of the abyss but still have a difficult time ahead," said Brian Hilliard, economist at Societe Generale."We are clearly out of the abyss but still have a difficult time ahead," said Brian Hilliard, economist at Societe Generale.
Industry groups called on the Bank of England to continue its actions to stimulate the economy.Industry groups called on the Bank of England to continue its actions to stimulate the economy.
"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," said David Kern, chief economist at the British Chambers of Commerce."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," said David Kern, chief economist at the British Chambers of Commerce.
An advisor to the central bank had suggested on Thursday that the Bank may put its asset purchasing on hold.An advisor to the central bank had suggested on Thursday that the Bank may put its asset purchasing on hold.
Harder to balance?Harder to balance?
According to the Centre for Economic and Business Research (CEBR), the worse-than-expected figures make it unlikely that the Treasury will be able to meet its own economic forecasts.According to the Centre for Economic and Business Research (CEBR), the worse-than-expected figures make it unlikely that the Treasury will be able to meet its own economic forecasts.
In the Budget, the Treasury forecast the economy would decline by between 3.25% to 3.75% in 2009 and that missing this target would make it harder for the Treasury to balance its books. In the Budget, the Treasury forecast the economy would decline by between 3.25% to 3.75% in 2009 and missing this target would make it harder for the Treasury to balance its books.
"For this to now happen would require a remarkable bounce back in the second half of the year with growth of around 1.5% of the remaining two quarters," said Richard Snook, senior economist at the CEBR."For this to now happen would require a remarkable bounce back in the second half of the year with growth of around 1.5% of the remaining two quarters," said Richard Snook, senior economist at the CEBR.
"Weaker growth than the chancellor expects means that public sector net borrowing will exceed the £175 billion projected for the 2009/10 fiscal year," he added. "Weaker growth than the chancellor expects means that public sector net borrowing will exceed the £175 bn projected for the 2009/10 fiscal year," he added.
The release is the ONS's earliest estimate of gross domestic product and the figure is often revised as data for the full three months is not yet available for every sector of the economy.
"The bottom line was that today's number is pretty dire, and a sharp wake-up call for anyone who had already been dreaming of recovery," said Colin Ellis at Daiwa Securities.