Britain's economy shrank by a worse-than-expected amount in the second quarter, official data showed on Wednesday, as recession tightened its grip on the eve of the London Olympics.
Gross Domestic Product (GDP) slumped 0.7 percent between April and June from the first three months of the year on steep output declines in the construction and manufacturing sectors, the Office for National Statistics said.
Output was also impacted by an extra day's public holiday in June for Queen Elizabeth's diamond jubilee celebrations and by very poor weather. Britain suffered its wettest quarter on record in the reporting period.
"We all know the country has deep-rooted economic problems and these disappointing figures confirm that," British finance minister George Osborne said in reaction to the data published two days before the start of the Games.
"We're dealing with our debts at home and the debt crisis abroad ... but given what's happening in the world we need a relentless focus on the economy."
As well as weak output at home, Britain's economy is also suffering from the debt crisis in the neighbouring eurozone. Britain is not a member of the eurozone but relies on the bloc for the bulk of its trade.
The April-June contraction was the biggest quarterly fall since the first quarter of 2009 and far worse than market expectations for a 0.3-percent drop, according to analysts polled by Dow Jones Newswires.
Sterling dropped against the euro and dollar in reaction, while London's benchmark FTSE 100 shares index came off earlier gains.
Britain was already in recession after posting two successive negative quarters since late 2011. GDP shrank 0.4 percent in the fourth quarter of last year and by 0.3 percent in the first quarter of 2012.
The ONS on Wednesday added that GDP contracted 0.8 percent in the second quarter compared with one year earlier.
"This (new data) really is a very nasty surprise indeed," said Howard Archer, chief European economist at the IHS Global Insight consultancy.
"GDP contraction of 0.7 percent quarter-on-quarter in the second quarter is far deeper than anyone expected and is a very disappointing and worrying performance.
But Archer said Britain's economy "should be able to return to growth in the third quarter, helped by the Olympics."
The London Olympics is costing a staggering £9.3 billion ($14.4 billion, 11.9 billion euros) to stage -- more than four times the original estimate -- but the government is confident they will help Britain attract £6.0 billion in investment by 2016.
A new poll showed on Wednesday that more than half of Britain-based employees believe the Games will have no effect on workforce morale as the country struggles to exit the deepening recession.
A survey by business performance consultants Lane4 -- a firm run by Olympic swimming gold medalist Adrian Moorhouse -- showed 58 percent of respondents thought the Games would have no effect on sentiment.
A further 18 percent claimed that any morale boost from the Olympics would be "short-lived," Lane4 said.
In a response to Britain's recession, Bank of England policymakers recently voted in favour of adding another £50 billion of new cash to help stimulate the economy under its quantitative easing (QE) programme.
"If there is a further policy response after today's news, it is more likely to come from the Bank of England in the form of more QE," said Scott Corfe, senior economist at the independent Centre for Economics and Business Research.
"Our central forecast is for the Bank to expand its programme of QE by a further £50 billion later this year, bringing the total stock of assets purchased to £425 billon."
Under QE, the Bank of England creates new cash to purchase assets such as government and corporate bonds with the aim of putting more cash into the economy and so boost lending and output.