Record recession for UK economy

Britain's economy contracted unexpectedly in the third quarter of this year, quashing hopes that the downturn was ending and instead marking the country's longest recession since records began in 1955. 

• Sterling plunged more than a cent against the dollar and government bond futures surged as traders and analysts bet the Bank of England may now have to expand its quantitative easing programme to secure a recovery.
• The figures are a blow to the ruling Labour government, trailing in opinion polls and hoping for a recovery to take hold well before an election due by next June.
• The Office for National Statistics (ONS) said British gross domestic product (GDP) fell by 0.4 per cent between July and September, meaning the economy has contracted for six successive quarters for the first time for more than five decades.
• The data was much worse than analysts’ expectations of a 0.2 per cent rise, with not a single analyst out of the 35 polled by the Reuters news agency having predicted a negative reading.
• “Third quarter GDP is awful, with no positive news within the report,” said James Knightley, an economist at ING, a Dutch bank. 
• “More worryingly from sterling’s perspective is the fact that the UK may be the only major economy to have contracted in the third quarter.”
• The length of the downturn could prove an embarrassment for Gordon Brown, the prime minister, particularly as Germany and France are already out of recession. 
• Alistair Darling, Britain’s finance minister, said he still believed the economy would return to growth by the end of the year, reiterating a forecast made in the budget in April.
• Darling will update that forecast in his pre-budget report which is due in the next few weeks.
• “We’re facing the worst global financial crisis and recession in 60 years,” he said.
• “We’ve always said that we remain cautious as a result of the high degree of economic uncertainty.
• “That’s all the more reason to continue the action the government is taking. To remove it now would be madness.”
• Year-on-year, output shrank by 5.2 per cent, only marginally better than the record 5.5 per cent annual fall registered in the second quarter.
• The quarterly decline between April and June was unrevised at 0.6 per cent.
• The ONS said there had been a peak-to-trough GDP fall of 5.9 per cent during the current recession, compared to six per cent between the second quarter of 1979 and the first quarter of 1981 – a period when there were some quarters of growth.
• Analysts had been pinning their hopes for recovery on months of survey evidence that had pointed to a sharp rise in confidence and activity in the services sector, which makes up three-quarters of Britain’s economy.
• “What is most striking is the still-weak contribution from the services sector,” said Stephen Lewis, an economist at Monument Securities.
• Services contracted by 0.2 per cent over the quarter, with the distribution, hotels and catering sub-sector leading the decline with a one per cent quarterly drop.
• Economists had already expected industrial output to be weak, following a sharp monthly drop in August, and the GDP data bore this out.

  Industrial production fell by 0.7 per cent over the quarter, taking its annual decline to 10.4 per cent.