Recession fears as UK economic growth weakest for three years

Figures from the Office for National Statistics (ONS) have revealed that the UK economy grew 0.2% in the second quarter of the year, which is the lowest quarter-on-quarter growth since the third quarter of 2005.

It grew 1.6% compared with the same quarter a year ago - also the weakest growth for three years, and much lower than the 2.3% growth noted in the first quarter.

The fall in growth is primarily due to the credit crunch and the shortage of construction activity after the slowdown in the housing market has meant job losses have been rife in the sector.

In the last fortnight alone, housebuilders including Persimmon, Barratt’s, Bovis and Redrow all announced job losses due to the housing slowdown while Wolseley, the world’s largest distributor of plumbing materials, announced further job losses as a result of the property slump.

Construction output fell by 0.7% - the largest fall for three years. Industrial production also fell 0.5% in the quarter, while the service sector, which accounts for 74% of GDP, also slowed.

The latest statistics are fuelling fears that a recession is likely.

However, on the positive side, within the services sector, the transport, storage and communications category rose 2.2% on the quarter, the biggest increase since 2000.

Commenting on the figures, Paul Dales, UK economist at Capital Economics, said an outright recession is now our central scenario. Looking ahead, the more up-to-date surveys indicate that in the third quarter so far, overall economic growth is coming to a standstill.

James Knightley of ING added that with regard to the outlook, we look for even weaker growth and possible contraction in the third and fourth quarters.

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