Britain still in recession in second quarter

By Fiona Shaikh

LONDON (Reuters) - The economy is not yet out of recession despite a marked easing in the pace of decline in the manufacturing and services sectors in the second quarter, a survey by the British Chambers of Commerce suggested on Tuesday.

The BCC's quarterly economic survey of more than 5,600 businesses showed sales and orders continued to fall in the three months to June, though at a much slower pace than the record rates of contraction in April's first-quarter survey.

In contrast to other surveys, it still suggests the economy continued to contract in the second quarter, and will reinforce expectations the Bank of England will expand its quantitative easing scheme at its policy meeting this week.

BCC chief economic adviser David Kern said the figures were consistent with the economy having shrunk by 0.1-0.4 percent in the second quarter, better than the 2.4 percent drop in the first quarter, and he does not expect a return to growth until the end of this year.

"The worst of the recession appears to be over but a recovery is not guaranteed and even if we get one, it will be a very shallow recovery by historical standards," Kern said.

The BoE has taken unprecedented measures to drag Britain out of recession, slashing interest rates to close to zero and embarking on a 125 billion pound asset purchase programme to pump money into the economy.

Most analysts reckon the BoE will extend the scheme to the 150 billion pound limit sanctioned by the government either this month or next. Kern said policy must remain loose to allow a recovery to take hold, noting measures so far had yet to impact.

Rate-setters seem in little hurry to start unwinding the massive stimulus they have injected into the economy and are worried that tight lending conditions will derail any pick-up.