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British economy shrinks 0.8%

BRITAIN'S economy shrank 0.8 percent in the second quarter, official figures showed yesterday, marking the fifth straight quarter of declines in a severe recession and worse than analysts' forecasts of a drop of 0.3 percent.

The economy has now shrunk 5.6 percent since the second quarter of last year, the biggest drop since quarterly records began in 1955.

The Office for National Statistics said both manufacturing and services output continued to decline.

The second-quarter figure, which is subject to revision, improved over the 2.4 percent decline in the first quarter. Unemployment, now at 7.6 percent, is expected to rise.

"The provisional UK GDP figures for the second quarter are shockingly bad and firmly dash any hopes that the UK had already pulled out of recession," said Vicky Redwood, economist at Capital Economics.

She said the full-year fall in economic output could be as much as 4.5 percent.

Output fell despite recent hopeful signs in rising retail sales, increasing home lending and some reports of higher house prices.

The International Monetary Fund has forecast that Britain's economy will not return to growth until next year, and then only at a weak level. The Bank of England has taken drastic steps to spur growth, slashing interest rates to a record low of 0.5 percent and increasing the supply of money.

Increased car production in June marked the beginning of a recovery, said Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders.

The society said car production in the United Kingdom was down 30 percent from a year ago, but that was better than the 50 percent fall for the first six months of the year. Total vehicle production including commercial vehicles was down 34.5 percent in June.

Construction fell 2.2 percent in the period, nearly 15 percent below the same quarter last year, the biggest year-on-year decline since records have been kept.


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