Hopes of a swift end to recession have been shaken after figures showed a far worse than expected 0.8 per cent decline in the economy between April and June.
The UK’s fifth successive quarter of recession was much deeper than the 0.3 per cent forecast, stunning experts and business leaders.
The economy has slumped 5.6 per cent since the second quarter of 2008, according to the Office for National Statistics’ (ONS) estimates – the biggest fall since its records began in 1955.
IHS Global Insight economist Howard Archer called the figures “a really nasty and disappointing shock”, while the Institute of Directors warned of a “long, slow path” to recovery.
Senior policy adviser Corin Taylor said: “It looks like this recession still has some way to go.
“We don’t expect growth to resume before 2010.”
Although the figures may be revised by the ONS when it has more data on the economy, it puts pressure on Chancellor Alistair Darling’s forecast of a return to growth by the end of this year.
The economy has now shrunk by 5.7 per cent since the first quarter of 2008, the ONS said.
This is more than double the depth of the early 1990s recession and approaching the level of the slump seen in the early 1980s.
Although the figures bettered the sharp 2.4 per cent contraction seen in the first three months of 2009 – the worst quarterly slump since 1958 – experts were hoping for a much bigger improvement in the economy.
A 0.7 per cent fall in output from business services and finance - the worst since the ONS began measuring the sector in 1983 – was the biggest driver behind the 0.8 per cent second quarter decline.
The services industry - accounting for almost three-quarters of overall economic output - showed a 0.6 per cent fall.
Construction industry output fell 2.2 per cent over the quarter and is now 14.7 per cent below the same period last year, which is the biggest fall since records began in 1948.
Production industry output - such as construction, mining and manufacturing - fell 0.7 per cent between April and June, the ONS added.
Experts predicted that interest rates would remain at 0.5 per cent well into 2010, while the Bank of England would soon drop its “wait and see” stance and resume efforts to boost the money supply through quantitative easing.
David Kern, chief economist at the British Chambers of Commerce, said: “There is no room for complacency and suggestions of suspending quantitative easing are misguided. It is important to persevere with an aggressive policy stimulus to ensure that the economic downturn does not worsen.”