Bank urged to cut rate as economy dips to 1992 levels

A string of economists warned Britain will slide into recession unless the Bank steps in swiftly to ease pressure on businesses and homeowners.

The Office for National Statistics reported growth had slowed to zero between April and June, the worst figure for 16 years and lower than the modest 0.2 per cent growth estimated.

It ends a run of 63 consecutive quarters of growth since April-June 1992, when the UK's gross domestic product shrank.

The gloomy figures shatter Gordon Brown's boasts of continuous economic growth since Labour came to power in 1997. They also increase fears of recession - defined as two consecutive quarters of negative growth.

Stewart Robertson, of Morley Fund Management, said: "The Bank needs to do something to prevent a fairly shallow recession from getting worse. They need to cut rates this year."

Brian Hilliard, of Societé Générale, said: "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."

Chiara Corsa, of Unicredit, said: "We have so far bet on a Bank of England on hold till the end of the year. However following today's weak growth number we think that the UK economy will hardly escape the technical recession."

Capital Economics's Jonathan Loynes said: "The second estimate clearly increases the, already strong, chances that the economy will fall into recession over the coming quarters."

Bank of England Governor Mervyn King last week said there was "bound to be a quarter or two" of negative growth as rate-setters fight the economic slowdown and rampant inflation.

The Tor ies and i ndependent economists said Gordon Brown should shoulder the blame.

Shadow chancellor George Osborne told the Standard: "For years, Gordon Brown has boasted about consecutive quarters of economic growth.

"Now the economy has ground to a halt and the Brown bubble has burst. Millions of people are paying an unfair price for Labour's economic incompetenceand the fact that the Prime Ministerdidn't put money aside during the good times to prepare for a rainy day."

Martin Weale, director of the National Institute of Economic and Social Research, said the blame could be laid at Mr Brown's door because of the decisions he made in 10 years as Chancellor.

He said the figures blew apart Mr Brown's boast that he had ended the cycle of "boom and bust" in Britain. "Boasting about what is going to happen in the future is always foolish," he said.

A Treasury spokesman said: "The UK, like other economies, is seeing the consequences of globally high commodity prices, as well as the uncertainty in the credit markets.

"The Government's priority is to guide Britain through these challenging times, while also supporting those hit hardest as a result of these global factors."

The ONS lowered its previous estimate after revising manufacturing and construction output downwards. Growth in the powerhouse services sector - accounting for around three-quarters of economic output - was scaled back from 0.4 per cent to just 0.2 per cent.

The ONS figures also showed the impact on homes of soaring energy and food bills, after household spending in the second quarter of this year declined by 0.1 per cent - the weakest performance in three years.

James Knightley, at ING, said: "With rising unemployment, negative real wage growth and falling asset values being intensified by the latest hike in utility bills, our technical recession view is looking more plausible."