THE eurozone may be hurtling towards a recession, taking Britain with it, according to new figures which reveal that economies across the Continent have shrunk over the past few months.
Analysts warned the new data suggested things could get a lot worse for the UK than even the Bank of England's gloomy prediction earlier in the week.
High fuel and food prices were blamed for constraining consumer spending and diminishing the econ
omies of Germany, France and Italy in the last quarter.
The eurozone accounts for about half of UK exports, and it had been hoped that the area would support the foundering domestic economy.
However, experts said consumers were less likely to be rushing out to buy British.
Paul Dales, a UK economist at Capital Economics, said: "It looked as though the strength of the eurozone would prop up the UK economy by supporting export growth. However, today's news that the eurozone economy contracted by 0.2 per cent suggests that activity may not be as supportive for the UK."
Jorg Radeke, an economist at the Centre for Economics and Business Research, also warned the quarter's weak figures could mean the eurozone economy was heading for a recession.
"Although the sharp decline in economic growth was widely expected – the consensus forecast was minus 0.2 per cent – the economic slowdown has intensified markedly in a number of European countries," he said.
He added that the figures came amid falling retail sales.
According to the Eurostat figures, economic activity fell throughout the 15-state eurozone. Germany, the region's largest economy, led the demise, shrinking 0.5 per cent between April and June. The world's biggest exporter had weathered the economic storm – despite high inflation hitting domestic spending, a slowing world economy and a strong euro hurting exports – and the fall is its first contraction in four years.
France and Italy were both down 0.3 per cent. The same downturn is affecting the wider world, with Japan already reporting a 0.6 per cent dive.
Earlier in the week, Mervyn King, the Governor of the Bank of England, said Britain's economy was also slowing sharply.
The UK economy grew 0.2 per cent during the second quarter, down from 0.3 per cent in the first, but economists agree the second quarter figure will be revised lower next week when a more accurate calculation is issued.
Sterling slumped after Mr King raised the spectre of a recession. Holidaymakers will find their money does not stretch as far. Early yesterday, the pound touched a near-two year low of $1.86, before settling at $1.81. It was also weaker against the euro, at 1.26.
Thomas Cook and TUI Travel confirmed they are raising prices and putting fewer holidays on the last-minute market.
FACT BOXPOSITIVE EFFECTS• Holidays in the UK will be cheaper and tourists will get more spending money.
• Exporters will attract more clients as products will be more competitively priced.
NEGATIVE EFFECTS • Firms who use imports in products will pass on added expense to British customers.
• It will be more expensive to go overseas on holiday.
