Britain's economy is teetering on the brink of recession as official figures showed that output ground to a halt between April and the end of June. This is the weakest performance since 1992, the tail-end of the last recession, and will increase pressure on the Bank of England to cut interest rates to prevent a full-blown economic slump.

Official figures released this morning showed that output failed to grow at all in the second quarter, contrary to initial estimates showing that the economy grew by 0.2 per cent between April and June 30.

On the year, GDP was 1.4 per cent higher, revised down from an initial reading of 1.6 per cent and the weakest since the final quarter of 1992.

The downward revision came after grim news from the manufacturing and services sectors with surveys suggesting acitivity has contracted for at least three months in a row.

The stagnation of the economy raises the prospect of recession as businesses struggle in increasingly difficult conditions. A technical recession is defined as two consecutive quarters of falling output.

Mervyn King, Governor of the Bank of England, last week refused to rule out the possibility of a recession.

Earlier this week, the British Chambers of Commerce became the first industry body to warn that the UK would slip into a technical recession. It said that output would stagnate or fall in two of the next three quarters, raising the "distint possibility" of a recession. It added that the economic slump could cost 300,000 Britons their jobs.

Economists said that the slump could extend into next year.

Jonathan Loynes, of Capital Economics, said: "The economy now looks set to grow by just 1.2% or so this year, with a very strong chance of a technical recession in the second half. And things will be considerably worse in 2009."

Britain’s services sector, which accounts for about two thirds of output, grew by just 0.2 per cent between April and June, the weakest growth since the end of 1995. Manufacturing output fell by 0.8 per cent on the quarter, while construction, which has suffered during the seizure in the housing market, fell by 1.1 per cent. Household spending also fell by 0.1 per cent compared with the first three months of the year.

Signs that businesses were battening down the hatches for tough conditions ahead became apparent yesterday as new official figures showed that business investment fell by more than £680 million between April and June as firms anticipated a drop in demand.

Total business investment fell to £35.8 billion in the second quarter, down nearly 2 per cent from £36.5 billion in the first quarter, although this was slightly up on the £35.1 billion investment in the second quarter of last year.

Investment by manufacturers fell by 5.8 per cent compared with the first three months of the year, while service companies, which account for nearly three quarters of the country’s output, cut their investment spending by 2.6 per cent in the same period.

The slowing investment in capital projects by firms sets the scene for slowing activity, raising the prospect of stagnant or falling output in the months to come.

Recent figures showed that overall activity in the services sector contracted for a third month in succession last month, according to the latest purchasing managers’ survey of its conditions, with key gauges of future conditions pointing to an even more severe deterioration ahead.

At the same time, official figures for manufacturing showed that its output tumbled by 0.5 per cent last month, in a fourth consecutive monthly fall that marked the sector’s first sustained run of decline since 2001, scuppering its still-fragile recovery.

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