U.K. Economy Contracted in the Past Three Months, Niesr Says

By Brian Swint

Sept. 10 (Bloomberg) -- The U.K. economy is contracting for the first time in at least a decade, the National Institute for Economic and Social Research said.

Gross domestic product dropped 0.2 percent in the June to August period and fell 0.1 percent in the three months through July, the group, whose clients include the Bank of England and the U.K. Treasury, said in an e-mailed statement today. The May to July estimate, revised today, was the first decline since Niesr started its calculation in April 1996.

``These figures are appreciably lower than we had anticipated last month on account of the downward revision to second-quarter GDP growth published last month,'' Niesr said in a statement. ``Output was weak in June and base period effects therefore suggest that the rate of output fall may not be greater than the August figure.''

Britain may be entering its first recession since 1991 as house prices plummet and financial services reel from the global credit squeeze that has already cost more than $500 billion in writedowns and losses. The Bank of England still hasn't cut interest rates since April on concerns about inflation, which reached more than double the 2 percent target in July.

U.K. growth stalled in the second quarter, ending the country's longest stretch of growth in more than a century, the statistics office said Aug. 22.

More than half of the 51 economists in a Bloomberg News survey from Aug. 29 said the benchmark interest rate will fall by a quarter-point to 4.75 percent from the current 5 percent by the end of the year.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.