UK economy contracts more than expected in Q2

The UK economy shrank at more than twice the pace expected in the second quarter due to persistent weakness in crucial sectors such as construction, banking and business services. Gross Domestic Product (GDP) contracted 0.8% in the April-June quarter from the first quarter, the Office for National Statistics said. Economists had predicted a 0.3% drop, according to the median forecasts of economists. From a year earlier, the British economy shrank 5.6%, the most since records began in 1955. The pound dropped as much as 0.5% against the dollar after the report.

The figures underscore the possibility that the Bank of England could still move to expand its 125 billion pound (US$205bn) asset-purchase facility, economists said. Bank policy makers earlier this month deferred a decision on whether to expand the quantitative-easing program to the full 150 billion pounds authorized by the Treasury. Today’s report is the first among the Group of Seven (G7) nations for the second quarter. The International Monetary Fund (IMF) forecasts that the UK will contract 4.2% this year, compared with 4.8% in the euro area and 2.6% in the US.

Prime Minister Gordon Brown said that the G20 nations need to take steps to revive the world economy. "We are at a point where banks have been stabilized, but we don’t yet have a strategy for a return to growth," Brown said at the opening of a meeting in his office in London.