The latest figures showed GDP fell 0.5 per cent between April and June in the Office for National Statistics’ second estimate, better than the initial 0.7 per cent drop that shocked the City last month.
But Graeme Leach, chief economist at the Institute of Directors, said falls confirmed across services, manufacturing and construction output were concerning and it was clear the economy was flatlining.
“It is difficult to see where the kick to growth comes from for any sector. The core problem is the euro crisis and economic uncertainty. Until that begins to ease the UK economy will bump along the bottom,” he warned.
Although an improvement on the figure first reported, the revised fall was still the biggest drop since the first quarter of 2009 – when the economy was hit by the immediate aftermath of the financial crisis.
“The headline is a bit less frightening but the bottom line is pretty much the same: the UK economy has shrunk for three consecutive quarters,” pointed out Vicky Redwood of Capital Economics. “Given the drags from the fiscal squeeze, eurozone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead.”
Rob Harbron, an economist at the Centre for Economics and Business Research, said weak conditions are likely to prevail for some time and growth for Q3 is forecast to be “only marginal at best”.
“As a result, calls for the further use of stimulus tools are likely to grow louder,” he said. “We expect the Bank of England to provide £50 billion more quantitative easing after their current round of asset purchases has been completed.”
Figures released yesterday also showed the UK’s trade deficit increased to £7.3bn, up from £3.7bn in the previous quarter as the eurozone debt crisis hit exports – its biggest fall since the third quarter of 2010, which wiped 1 per cent off the GDP figure. Business investment also fell for the first time for more than a year.
Jeremy Cook, chief economist at World First foreign exchange, said those figures “painted a picture of an economy that is holding on grimly to some semblance of performance” and warned that further headwinds from the eurozone or elsewhere could be “catastrophic”.
The improved GDP figures are unlikely to ease pressure on Chancellor George Osborne, who came under fresh fire to boost the economy when figures this week showed a shock increase in public sector borrowing in July.
A spokesman for the Treasury said: “Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process.. [But] compared to two years ago, the deficit is down, inflation is down, and there are more private sector jobs.”