LONDON (AFP) — The economy came closer to a recession on Friday after official data showed it had slowed further during the second quarter as the construction and manufacturing industries weakened.
Gross domestic product grew by only 0.2 percent in the April to June period compared with the first three months of 2008.
This was the slowest pace of economic growth for more than three years, according to the Office for National Statistics.
The data followed gloomy figures for the eurozone, Germany and France on Thursday which analysts said also raised the spectre of possible recession.
"Weaker construction and production output drove the deceleration in growth, which was partially offset by increased growth in the service industries," the ONS said as it gave its first estimates for second-quarter GDP.
The data matched analyst consensus forecasts, after Britain's economy grew 0.3 percent in the first quarter of 2008 compared with the final three months of 2007.
"The 0.2-percent rise ... shows that the economy has weakened dramatically even before the full impact of the credit squeeze and housing downturn has been felt," said Capital Economics analyst Paul Dales.
"An outright recession is now our central scenario. With industrial production having fallen in both (the first and second quarters), industry is already in recession.
"Overall growth would have been much weaker if a gain in transport and communication output (in the second quarter) did not push services output growth up from 0.3 percent in (the first quarter) to 0.4 percent," said Dales, an expert on the British economy.
The ONS added on Friday that Britain's economy had grown 1.6 percent during the second quarter when compared with the year-earlier period -- the smallest annual expansion since the second quarter of 2005. Analysts had forecast an year-on-year growth rate of 1.7 percent.
The month-on-month figure of 0.2 percent growth was also the slowest quarterly gain since the first three months of 2005.
Britain's economy expanded 2.3 percent during the first quarter when compared with the year-earlier period.
Business leaders at the British Chambers of Commerce on Friday warned of a "dramatic worsening in economic prospects."
"The position is likely to deteriorate in the second half of the year. We now expect zero or negative growth in the next two or three quarters," said its economic adviser David Kern.
The technical definition of a recession is when an economy contracts for two or more quarters in a row.
Construction output in Britain fell by 0.7 percent in the second quarter owing to a "particularly large" fall in new housebuilding, the ONS said.
In recent weeks, British homebuilders have axed about 5,000 jobs as house prices fall also amid surging inflation and sliding retail sales.
ING Bank economist James Knightley on Friday said recession "seemed probable" for Britain.
He added: "The credit crunch coupled with falling house prices and rising food and energy costs are continuing to constrain activity, yet fiscal and monetary policy can do nothing to ease the pain."
Bank of England policymakers were split three ways when they left interest rates unchanged earlier this month, reflecting the dilemma they face in controlling soaring inflation whilst boosting growth.
The BoE's nine-member monetary policy committee voted 7-2 to leave borrowing costs at 5.00 percent on July 10, according to the minutes of the latest meeting released on Wednesday.
One of the nine policymakers had called for a quarter-point cut to borrowing costs in July and another for a hike by the same amount.
Britain's 12-month inflation rate jumped to a 16-year high of 3.8 percent in June. Meanwhile British retail sales sank in June to record the largest monthly drop for 22 years, official data showed on Thursday.
Copyright © 2010 AFP. All rights reserved. More »
