Fears of a third quarter of recession add to Osborne's woes

Chancellor George Osborne faces fresh political embarrassment this week as the nation's number-crunchers condemn the struggling UK economy to a third successive quarter of recession.

Wednesday's estimates from the Office for National Statistics are set to show a 0.2 per cent decline for the economy between April and June, mainly due to the extra Diamond Jubilee holiday. The Bank of England estimates the lost working day could knock as much as 0.5 percentage points off growth.

The glum figures are likely to take the gloss off better recent economic news on falling inflation and the lowest unemployment for nearly a year. Experts warn the economy has seen virtually no growth for the past two years and the UK is taking longer to pull out of its current trough than after the Great Depression.

Deutsche Bank's chief UK economist George Buckley said: "Our performance is actually worse than the 1930s. Back then the UK shrank by 7.6 per cent but it only took four years – until 1934 – to reclaim all of that ground.

"This time around we shrank 6.3 per cent but are still around 4 per cent short of where we were four years after the 2008 peak. The economy is growing at less than 1 per cent a year, well below its usual recovery rate."

The International Monetary Fund added to Mr Osborne's headaches last week by urging him to ease the pace of deficit cuts if growth fails to revive.

HSBC's UK economist Simon Wells said: "Stagnation is baked in the cake for 2012. Given the uncertainties from the eurozone that haven't gone away, which firms are going to be embarking on a multi-million investment spree?"