The first reading of the data from the Office for National Statistics showed a fall much greater than the 0.2% contraction analysts had expected. It will come as a serious blow for the government as the impact of its austerity measures kick in and the eurozone crisis acts as a drag on growth.
The data for Q2 marks the longest double-dip recession since quarterly records began in 1955 and is believed to be the worst since the second world war.
Britain slipped into its second recession within four years at the end of 2011, posting a 0.4% contraction in the last quarter of the year and a 0.3% contraction in the first quarter of 2012.
However, things might look brighter by the third quarter of the year, as hosting the Olympics could give a much-needed boost to the UK’s economy. Goldman Sachs estimates the Games could add as much as 0.4 percentage points to GDP growth during the quarter.
Earlier this month the IMF cut its forecasts for UK GDP growth for both this year and next as it warned of a “ratcheting up” of financial market and sovereign stress in the eurozone periphery. The organisation cut its forecast for UK GDP growth in 2012 to just 0.2%, down from the 0.8% it predicted in its April 2012 update. It also cut its forecast for 2013 GDP growth by 0.6 percentage points to 1.4%.
Which executive director Richard Lloyd said: “Today’s shocking GDP figures are further evidence of what hard-pressed consumers know only too well, that we are in the midst of the biggest financial squeeze since the 1920s.
“Our Consumer Report found Britons are among the most economically vulnerable consumers in Europe, with people’s ability to save at rock bottom and personal debt levels sky high. Alarming numbers of people say they are forced to take on new forms of debt just to make ends meet, and many more say they would not cope with unexpected shocks to their incomes or household bills. Three quarters of the British public describe the UK economy as ‘poor’ and half of the population believe it will only get worse over the coming 12 months.”
