Shock as economy shrinks by 0.7%

Britain has slumped to its longest double-dip recession in more than 50 years after shock figures revealed the economy shrank by a worse-than-expected 0.7% between April and June.

Gross domestic product (GDP) - a broad measure for the economy - fell for the third quarter in a row and by much more than the 0.2% expected by forecasters, according to the Office for National Statistics (ONS).

The dire performance, which represented the biggest quarterly fall since the depths of the financial crisis in the first quarter of 2009, was hindered by an extra bank holiday for the Queen's Diamond Jubilee and the wettest April to June period on record.

The figure is the ONS's first estimate and may be revised in coming months, but it suggests the UK is mired in the longest double-dip recession since quarterly records began in 1955 and it is believed to be the longest since the Second World War.

The last double-dip recession was in the 1970s, when the economy was hamstrung amid soaring oil prices and a miners' strike, but that only lasted two quarters.

The grim economic reading will heap more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery.

The UK's economy is 0.3% smaller than when the coalition came to power in the second quarter of 2010, the ONS figures showed.

However, the statistics body said the Diamond Jubilee celebrations and the weather played a significant part in the latest slump, although it said it was too early to put a figure on its impact.

Mr Osborne said: "We all know the country has deep-rooted economic problems and these disappointing figures confirm that.

"We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.

"But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing."

The pound fell against the euro as the data increased chances that the Bank of England will pump more emergency money into the economy or drop interest rates further.

Vicky Redwood, chief UK economist at Capital Economics, said there was a possibility that the GDP figures are underestimating the true strength of the economy but added that it would take "pretty hefty revisions" to make the recent performance look even half decent.

She added: "What's more, the UK still faces significant obstacles, not least the knock-on impact of the renewed tensions in the eurozone. Even allowing for a decent bounce-back in the third quarter, we still expect the economy to contract by about 0.5% this year and to grow by only 0.5% in 2013."