Britain's economy weakest since 1990s recession

Britain's economy unexpectedly came to a standstill in the second quarter, its weakest performance since the recession of the early 1990s, revised official data showed.

The Office for National Statistics said GDP was unchanged on the quarter in the three months to June, down from a preliminary estimate of 0.2 per cent growth and below analysts' forecasts for a revision to 0.1 per cent growth.

That was the weakest since the second quarter of 1992 when the economy was in the throes of its last recession. On the year, GDP was 1.4 per cent higher, revised down from an initial reading of 1.6 per cent and the weakest since the fourth quarter of 1992.

Sterling and the FTSE 100 index of leading shares fell and interest rate futures rose after the data boosted expectations that borrowing costs will need to fall to prevent a deep and protracted slowdown.

"This really does put a rate cut firmly on the agenda although it is unlikely to come until we have seen the peak in inflation," said Brian Hillard, an economist at Societe Generale.

The Bank of England is already factoring in the economy standing still over the next year and has said growth needs to slow to tame inflation, which is running at more than double the central bank's two per cent target and expected to spike higher. The figures are likely to fan further criticism of Prime Minister Gordon Brown's handling of the economy. He will no longer be able to boast of the economy growing continuously since the Labour government came to power in 1997.

But the government is likely to point out that high oil prices and a credit crunch are hurting economies right across the world. The eurozone economy contracted in the second quarter. The downward revisions to the preliminary estimate of British GDP were across the board. Britain's mighty services sector grew by just 0.2 per cent on the quarter, its poorest showing since the fourth quarter of 1995.