Flat 2nd-Q in U.K. Ended Years of Growth

The UK economy stagnated in the 2nd-Q, ending the longest continuous run of growth since records began in '55. The U.K. Office for National Statistics recently said GDP was flat compared to the 1st-Q, marking the economy's weakest performance since the 2nd-Q 1992 and ending 63 straight quarters of expansion. The office had estimated that the economy grew 0.2% during the quarter. The data indicated the economy is on the brink of recession, and increased expectations the Bank of England will cut its key interest rate by year end. In annual terms, the economy expanded 1.4%, below economist forecasts of a 1.6% rise and marking the lowest rate of annual increase since the 4th-Q of 1992. The Bank of England expects growth to slow markedly in the coming months. At a press conference following the release of its quarterly Inflation Report earlier this month, Gov. Mervyn King acknowledged possibility of a couple of quarters of contraction. But the fact that the economy was already close to a contraction in the 2nd-Q raised expectations that the central bank will cut its bank rate before the end of the year, even as consumer inflation accelerates further above the bank's 2% target. Many economists now see Nov. as the most likely timing for a rate reduction, and some are pushing up the number of cuts they forecast after that. The BOE has kept the bank rate at 5% since April, following a string of cuts from a 5.75% peak in late 2007. The breakdown of the GDP data painted a picture of widespread weakness in the 2nd-Q. Household consumption marked its largest drop since 1st-Q 1995, slipping 0.1% on lower spending on household goods and services, food, nonalcoholic beverages, cars and tourism. Investment, which includes housing, fell 5.3%, after a 1.5% slip in the 1st-Q.