Economy contracts for third consecutive quarter

The economy shrank by 0.7% in the second quarter of 2012 compared to the first three months of the year, preliminary figures from the Office of National Statistics (ONS) show.

While a drop in GDP was anticipated, the fall was much sharper than forecast by the ONS, which had predicted a 0.2% fall.

The index of production (IoP) decreased 1.5% with manufacturing down 1.4% in Q2 compared to Q1 of 2012.

The fall in GDP marks Britain’s worst double-dip recession for 50 years.

Analysts including Peter Dixon at Commerzbank and Howard Archer at IHS Global Insight called the figures "terrible" and "a very nasty surprise".

Elsewhere, others, including the manufacturer’s organisation EEF were more positive. EEF chief economist Lee Hopley said: "A contraction was anticipated but the scale of the impact from one-off events was difficult to predict.

"Looking at manufacturing, it is very unlikely that the monthly drop in output in June implied by the figures gives a fair reflection of the underlying health of the sector.

"Extended shutdowns over the bank holiday period will have hit output over the quarter, but as the ONS points out we saw an even greater impact during the last Jubilee a decade ago."