UK economy grinds to a halt

After 16 years, longest period of growth ends

The boom is officially over. Growth in the economy ground to a halt in the second quarter of this year, thus ending the longest period of expansion in British economic history. The bust may not be far behind: many economists now believe an outright recession – two successive quarters where the economy shrinks in size – will follow later this year, a period of contraction that could extend well into 2009.

A generation too young to remember the last severe downturn will soon have to face such unfamiliar phenomena as rising unemployment, negative equity, home repossessions, large-scale bankruptcies and stagflation, as inflation continues to climb even as the economy stagnates.

At 5 per cent per annum, as measured by the RPI, inflation was last this high in July 1991, on its way down, while growth was last lower in the second quarter of 1992, when Britain was climbing out of the last recession. The "difficult and painful" year that the Governor of the Bank of England, Mervyn King, predicted last week seems to have arrived.

The Office for National Statistics yesterday revised its estimates for growth for the second quarter of this year downwards, from an increase of 0.2 per cent to zero, thus ending the run of 63 successive quarters of expansion.

Technically, the statistics revealed that the UK economy actually did grow between April and June, with the total value of goods and services produced in the UK rising from £315.510bn to £315.629bn, a rise of £119m, or 0.04 per cent – a minuscule increase by recent standards.

Household spending fell by 0.1 per cent, but construction, financial services and investment generally is being hard hit, with only a relatively strong performance from exports and a fall in imports preventing a slip into negative growth. Removing the trade figures puts the purely domestic economy in decline for the past two quarters and thus in recession, as one member of the Bank of England's Monetary Policy Committee, David Blanchflower, has already declared. All the indications are that things will get worse before they get better, and on a historic scale. Consumer confidence is running at levels not seen since 1974, with sentiment in the housing market registering 30-year lows; forward business orders are also hitting near-record poor performances.

There are signs the credit crunch is easing but first-time buyers are still finding it almost impossible to find a mortgage – and fewer want one as house prices fall by 10 per cent a year. Meanwhile, gas price rises are set to push inflation above 5 per cent, slowing the economy further.

There is a belief in the City that recession will force the Bank to cut rates by the end of the year. It has predicted "broadly flat" growth this year, and conceded a likelihood of two or more quarters of negative growth. Yesterday, the pound fell on expectations that rates would be cut sooner. Sterling hit its lowest level for a week against the euro.

However former Conservative chancellor Kenneth Clarke said he did not think the Bank would cut interest rates. "My feeling is that they will have to be raised because inflation is going to be a problem. The Bank cannot do anything about oil prices and it cannot do anything about global food prices," he said. "But it's got to make sure we don't get into a wage-price cycle bringing back really high inflation and making any slowdown worse than it otherwise would be."

Mr Clarke said a Tory government might inherit a "real mess" and will face "tough choices".

Vicky Redwood, UK economist at Capital Economics, said: "There must be a strong chance, now that output is falling, that the UK has already entered a technical recession."

Figures this week suggested the slowdown had resulted in a £2.2bn shortfall in stamp duty revenues already this year, and government spending rising faster than ministers assumed.

The Institute for Fiscal Studies estimates that a 1 per cent drop in growth adds about £2.5bn to public borrowing. Given that the Budget in March was based on a projection for growth this fiscal year of 2.5 per cent, Alistair Darling will face a black hole of at least £12.5bn in the public finances.

Crowing about growth

9 March 1999

Gordon Brown: "I can confirm our growth estimate for 1999 of 1 per cent to 1.5 per cent, which is what I told the House in November, followed by stronger growth."

21 March 2000

GB: "Today, I can report that in 1999, instead of the recession that many forecast, the British economy grew by 2 per cent. And Britain has been growing steadily while meeting our inflation target."

16 March 2005

GB: "Britain is today experiencing the longest period of sustained economic growth since records began in the year 1701."

21 March 2007

GB: "I can report... that after 10 years of sustained growth, Britain's growth will continue into its 59th quarter – the forecast end of the cycle –and beyond."

12 March 2008

Alistair Darling: "While other countries have suffered recessions, the British economy has now been growing continuously for over a decade – the longest period of sustained growth in our history."

Arts and Entertainment
Game Of Thrones
Uh-oh, winter is coming. Ouch, my eyes! Ygritte’s a goner. Lysa’s a goner. Tywin’s a goner. Look, a dragon
tvSpoiler warning:The British actor says viewers have 'not seen the last' of his character
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
The Etihad Stadium, home of Manchester City
premier league

The Independent's live blog of today's Premier League action

people'Bring It On' actress says her legal team will combat the 'vultures'
FootballGerman sparks three goals in four minutes at favourite No 10 role
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
tvReview: 'Time Heist' sees a darker side to Peter Capaldi's Doctor
Holly's review of Peterborough's Pizza Express quickly went viral on social media
ebooksAn unforgettable anthology of contemporary reportage
Dennis Rodman has confirmed he is not going to the Middle East to 'talk to with the leaders of Isis' as claimed in a recent satirical report
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam