Economy weakest since 1992

The Office for National Statistics said GDP was unchanged on the quarter in the three months to June, down from a preliminary estimate of 0.2% growth and below analysts’ forecasts for a revision to 0.1% growth. That was the weakest since the second quarter of 1992 when the economy was in the throes of its last recession. On the year, GDP was 1.4% higher, revised down from an initial reading of 1.6% and the weakest since Q4 1992.

Sterling and the FTSE 100 index of leading shares fell and interest rate futures rose after the data boosted expectations that borrowing costs will need to fall to prevent a deep and protracted slowdown. “This really does put a rate cut firmly on the agenda although it is unlikely to come until we have seen the peak in inflation,” said Brian Hillard, an economist at Societe Generale.

The Bank of England is already factoring in the economy standing still over the next year and has said growth needs to slow to tame inflation, which is running at more than double the central bank’s 2% target and expected to spike higher. The figures are likely to fan further criticism of Prime Minister Gordon Brown’s handling of the economy. He will no longer be able to boast of the economy growing continuously since the Labor government came to power in 1997. But the government is likely to point out that high oil prices and a credit crunch are hurting economies right across the world. The euro zone economy contracted in Q2.

The downward revisions to the preliminary estimate of British GDP were across the board. Britain’s mighty services sector grew by just 0.2% on the quarter, its poorest showing since the fourth quarter of 1995.

Manufacturing output fell by 0.8% on the quarter, the weakest since the first quarter of 2005. Construction output, which has been hard hit by the housing market slump, fell by 1.1% on the quarter -- the worst since Q3 2005. Household spending fell 0.1% on the quarter, its weakest since the Q2 of 2005. (Reuters)