By Brian Swint
Sept. 10 (Bloomberg) -- The U.K. economy is contracting for the first time in at least a decade and will go through a recession this year, two reports showed today.
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 National Institute for Economic and Social Research said in an e-mailed statement. The European Commission, the European Union's executive arm, predicted that the U.K. economy will shrink in the second half for two consecutive quarters.
The recession would be Britain's first since 1991 and comes 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 hasn't cut interest rates since April on concerns about inflation, which reached more than double the 2 percent target in July.
``Growth is weaker than we thought just a month ago,'' Martin Weale, director of Niesr, said in a Bloomberg Television interview. ``It's not practical for the Bank of England to cut interest rates with inflation so far above its target already. But once it turns down, I could see them able to cut.''
U.K. growth stalled in the second quarter, ending the country's longest stretch of expansion in more than a century, the statistics office said Aug. 22. Niesr's May-to-July estimate, revised today, was the first decline since the group started its calculation in April 1996.
The Brussels-based commission predicted today that the U.K. economy will contract 0.2 percent in the third and fourth quarters. It lowered its forecast for full-year growth to 1.1 percent from a 1.7 percent estimate in April.
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.
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