Economy shrinks by a shock 0.7%

Chancellor George Osborne has come under fresh pressure to ease his austerity measures after shock figures revealed the economy suffered a worse-than-expected 0.7% decline between April and June.

Dire construction and manufacturing output drove the biggest drop in GDP since the height of the financial crisis three years ago, alarming forecasters who had expected a much smaller 0.2% fall.

It is the third quarter in a row that the economy has contracted, meaning the UK is now mired in the longest double-dip recession since quarterly records began in 1955 - and possibly since the Second World War.

An extra bank holiday for the Queen's Diamond Jubilee and record rainfall played a significant part in the biggest slump since the height of the financial crisis three years ago, according to the Office for National Statistics (ONS).

But economists said the figures were a symptom of underlying weakness, with one branding the second quarter of 2012 a "disaster".

Labour and the unions seized on the figures as fresh evidence that the painful austerity measures are choking off the recovery, but a defiant Mr Osborne said the UK is battling "deep-rooted economic problems".

And Prime Minister David Cameron said the Government would "redouble all our efforts to get on top of our debts, deal with our deficit, get our economy moving".

The UK's economy is 0.3% smaller than when the coalition came to power in the second quarter of 2010, the ONS figures showed, and is still 4.5% lower than its 2008 peak.

Of particular concern was a 5.2% decline in the construction sector, while manufacturing also suffered hefty falls as its main export markets were hit by the eurozone debt crisis.

The pound fell against the euro as the data increased chances that the Bank of England will pump more emergency money into the economy or drop interest rates further.