16-year low as economy grinds to a halt

(EPA)

The economy ground to a halt between April and June, official figures showed today.

The flat second-quarter performance is the worst for 16 years and worse than the modest 0.2 per cent growth initially estimated by the Office for National Statistics (ONS).

It ends a run of 63 consecutive quarters of growth since April-June 1992, when the UK's gross domestic product shrank.

The gloomy figures will increase fears of recession - defined as two consecutive quarters of negative growth - and shatter Government boasts of continuous economic growth since it came to power in 1997.

Bank of England Governor Mervyn King last week said there was "bound to be a quarter or two" of negative growth as rate-setters battle the twin threats of an economic slowdown and rampant inflation.

The ONS figures also showed the impact of the squeeze on households coping with soaring energy and food bills in the second quarter of 2008, after household spending declined by 0.1 per cent - the weakest performance in three years.

The ONS lowered its previous estimate after revising manufacturing and construction output downwards. Growth in the powerhouse services sector - accounting for around three-quarters of economic output - was scaled back from 0.4 per cent to just 0.2 per cent.

The figures heighten the chances of interest rate cuts from the Bank's Monetary Policy Committee, which has been so far reluctant to ease policy with the cost of living soaring towards 5 per cent - almost double official targets.

But experts - who had predicted revised growth of 0.1 per cent in the second quarter - also warned of the "very strong chance" of the UK slipping into recession.

Capital Economics' Jonathan Loynes said: "The second estimate clearly increases the - already strong - chances that the economy will fall into recession over the coming quarters...Things will be considerably worse in 2009."

A Treasury spokesman said: "The UK, like other economies, is seeing the consequences of globally high commodity prices, as well as the uncertainty in the credit markets.

"The Government's priority is to guide Britain through these challenging times, while also supporting those hit hardest as a result of these global factors."