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UK economic slump worsens

UK economic slump worsens
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Britain’s economy sank far deeper into recession than expected in the second quarter of the year.

GDP fell 0.7 percent compared with the first three months.

That was the sharpest fall since the height of the global financial crisis in early 2009.

The causes of the broad-based slump included an extra public holiday during the period, government spending cuts and the crisis in the eurozone.

Finance minister George Osborne said the figures showed Britain had “deep-rooted economic problems”, adding that the slump in the second quarter was disappointing even when taking into account one-off factors that hurt.

Output in Britain’s service sector — which makes up more than three quarters of GDP — contracted by 0.1 percent in the second quarter after growing 0.2 percent in Q1 2012.

Industrial output was 1.3 percent lower, while construction — which accounts for less than 8 percent of GDP — shrank by 5.2 percent, its biggest drop since the first quarter of 2009.

Many Britons have reined in spending since the crisis and business are holding back investment as the lack of demand and fears about the spillovers from the eurozone crisis weigh on confidence, with the lack of credit hurting smaller firms.

“There are a great many so-called ‘zombie businesses’ teetering on the edge and operating on fine margins, and many directors are becoming increasingly weary after several years of tough trading,” said Julie Palmer of business recovery and restructuring specialist, Begbies.

But business surveys have so far painted a less dire picture of the economy, and unemployment has been falling over the past few months, leading some economists to voice doubts about the official data.

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