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UK Economic Growth Slows as Weak Housing Drags

LONDON (Thomson Financial) - The British economy grew at its slowest rate in over three years during the second quarter of the year as housing construction came to a near standstill, official figures showed today.

The office for National Statistics said GDP rose by an expected 0.2 percent in the three months to end-June from the previous three month period, down on the 0.3 percent recorded in the first three months of the year.

The second quarter rate of growth is the lowest since the first quarter of 2005, when output rose by 0.2 percent also. It was last lower in the second quarter of 2001, when growth was 0.1 percent. The last time the UK economy saw output decline was in the second quarter of 1992.

On an annual basis, the statistics office said the UK economy grew by 1.6 percent. That was the lowest since the second quarter of 2005, when it also grew by 1.6 percent. It was last lower in the first quarter of 1993, when growth stood at 1.5 percent.

The statistics office said the main reason behind the growth deceleration during the quarter came from the construction sector, primarily to a particularly large fall in new housing construction, partly offset by public infrastructure spending. The travails afflicting housing have been clearly illustrated by the problems affecting UK housebuilders on the stock market, such as Persimmon and Barratt Developments. Construction output, which accounts for around 6 percent of the UK economy, saw output decline by 0.7 percent on a quarterly basis, its biggest decline since the third quarter of 2005. On an annual basis, construction output was only 0.8 percent higher, down on the 2.4 percent growth seen the first quarter. The annual rate was the worst performance since the second quarter of 2006, when output declined by 0.3 percent.

Elsewhere, the statistics office said the services sector, which accounts for around two-thirds of total output, saw output rise 0.4 percent on a quarterly basis. Though 0.1 percentage point higher than the previous quarter, the annual rate of growth was only 2.1 percent, its lowest level since the fourth quarter of 1992, and down on the first quarter's equivalent 2.6 percent.

Within services, business services and finance saw output grow by 0.1 percent, half the first quarter rate. The second quarter rate was the lowest since the first quarter of 2002 and provides further evidence that the credit crunch is hitting home, particularly in the City of London.

Meanwhile, industrial output, which accounts for around 19 percent of UK GDP, was down a quarterly 0.5 percent, even worse than the 0.2 percent decline recorded in the first quarter. The decline was the biggest since the fourth quarter of 2005 when it fell by 0.7 percent.

As a result of the second consecutive quarterly decline, the annual rate fell by 0.8 percent, following a 0.4 percent rise in the first quarter. The annual fall was the biggest since the the fourth quarter of 2005, when it declined 2.7 percent.

Within industrial output, its main constituent, the manufacturing sector saw output decline 0.4 percent, offsetting the equivalent rise in the first quarter.

On an annual basis, it was also down 0.4 percent after a 0.9 percent rise in the previous quarter. The annual decline was the biggest since the fourth quarter of 2005, when output declined by 2.2 percent.

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