The release of the Preliminary GDP data really is disheartening news for the UK as the economy contracted by 0.7 percent in the second quarter of this year, more than the economic forecasts of only 0.2 percent, data from the Office for National Statistics showed. Britain's economic contraction further deepened as in the previous quarter, it was only by 0.3 percent, and such upsetting decline was blamed on the debt crisis and on the nation's biggest budget squeeze since World War II by Chancellor of the Exchequer George Osborne.
In February of this year, a respected think tank warned that the UK would fall deeper into recession if the government continues to "deliberately" damage the economy because of its fiscal squeeze. The National Institute of Economic and Social Research (NIESR) urged the government to loosen its fiscal stance, but the latter was stubborn. And now, the UK suffers because of its persistence to push through with the fiscal squeeze.
Further weakness of the UK economy could add calls for the government to do more to stimulate growth even after the Bank of England (BOE) boosted its asset purchases. Last week, the International Monetary Fund (IMF) said that Chancellor of the Exchequer George Osborne would have to loosen his fiscal squeeze and the central bank to engage in more stimulus-measures to pull up the economy from the economic slump.
Prime Minister David Cameron was disappointed to say the least. "They show the extent of the economic difficulties that we're grappling with, not least the situation right across the Euro Zone where our neighbors are also really struggling," he said. He also added that the report is an alarming reminder of the tremendous challenges facing the UK, which necessitates the provision of growth and jobs that the Britons and the economy needs. "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," he said.
Written for AlgosysFx