The UK economy saw no growth in the second quarter of 2008, while the gap in the current account widened to its highest level in almost a year.

Data from the Office for National Statistics (ONS) showed economic output remained the same as in the first quarter, confirming previous estimates.

Growth was 0% in the second quarter – which was even lower than the 0.3% figure for the first quarter of 2008.

Some analysts think the Bank of England may cut interest rates as a result.

Output was revised up to 1.5% from a previous estimate of 1.4% year-on-year.

The new data takes into account improved methodology and was revised back to 1961. This adds £19.5bn to the 2007 gross domestic product (GDP) figures.

Gloomy forecast

The quarterly figures were the worst for sixteen years, and several analysts maintained a downbeat forecast for the UK economy.

“Overall, not much cheer here. We continue to think that the UK economy is poised for a recession and a prolonged period of weak activity as the excesses of the last decade unwind dramatically,” said Paul Dales, an analyst at Capital Economics.

Separately, balance of payments information showed there was a deficit of some £11bn in the current account in the second quarter.

The current account deficit – which is the difference between imports and exports – widened by more than had been expected to £10.98bn, compared with £5.49bn in the first quarter.

This is the biggest the deficit has been since the third quarter of 2007 and it equates to 3% of GDP.

The increase has been due to increased interest payments from UK securities dealers and lower losses recorded by foreign banks operating in Britain.

Lena Komileva, an analyst at Tullett Prebon, said the figures showed the UK’s weak spot.

“The negative surprise on the current account highlights the vulnerability of the UK economy to external flows. At a time of a global drain of financial liquidity, this is worrying.”

News reported by The BBC

UK producer prices rose at a record pace in May, official figures show.

Prices jumped by 8.9% from the same month a year earlier, the Office for National Statistics said. Input prices also shot up, 27.6% higher on the year.

The quickest growth since records began in 1986, it was driven by higher food, scrap metal and energy costs.

The data was much worse than analysts had expected, and came amid signs that the UK’s economic growth is slowing and consumer confidence is crumbling.

A survey from the British Retail Consortium on Monday claimed that consumer confidence in the UK had tumbled to a record low due to rising prices and falling property values.

‘Absolutely horrendous’

The worry for many observers is that accelerating inflation will see the Bank of England delay cutting interest rates, and may even force them to move borrowing costs higher.

Subjected to the same challenges, the European Central Bank last week hinted that the next move for eurozone rates could be up, despite increasing evidence that the region’s economy is running out of steam.

Jonathan Loynes, an economist at Capital Economics, called Monday’s UK producer price figures “absolutely horrendous”.

“The increases are now so large that at least some portion of them looks likely to work its way into the High Street, even if retail sales slump,” he said.

Last week, the Bank left its main interest rate unchanged at 5%.

Inflation risks

Core output prices, which excluding food, beverages, petrol and tobacco, rose by 5.9% over the 12 months to May, sparking concern that inflation is spreading beyond the food and energy sector.

On a monthly rate, the core prices rose by 1.2%, the quickest increase in almost three decades.

“We hope that some of the strength can be explained by a once and for all pass-through of sterling’s weakness” Philip Shaw, Investec

Companies are caught in a tricky position because they either have to pass on their higher costs to consumers or watch their margins and potential profits shrink, analysts said,

A number of airlines, and food firms have started to push up their prices in response to the surging raw material costs, but many are resisting for fear of losing customers.

At the same time, many workers in both the public and private sectors are demanding higher wages to help offset the increasing cost of living.

“To cut interest rates further, we suspect that the Bank will want clear evidence that wage moderation is continuing and that reduced demand is increasingly undermining companies’ pricing power,” said Howard Archer of Global Insight.

Weak pound

Inflationary pressures are not being helped by a decline in the value of the pound against the euro, and a strengthening of the US dollar.

Analysts said that the unexpected jump in producer prices may be down in some part to a dip in the value of the UK currency.

“We hope that some of the strength can be explained by a once and for all pass-through of sterling’s weakness,” said Philip Shaw, chief economist at Investec.

However, he said that whatever the main reasons behind the increase, it gives a clear impression of why the Bank of England “is likely to find it impossible to cut interest rates this year”.

News reported by BBC