The worst recession in 50 years - latest figures reveal further economic woe

Published on Friday 23 October 2009 11:20

THE UK economy continued to shrink in the third quarter of 2009 - ending hopes of an end to the recession.

The shock 0.4% fall between July and September takes the total loss of output since the recession began last year to 5.9%, the Office for National Statistics (ONS) said.

Experts predicted a 0.2% advance for the economy, but today's figures leave the UK in the grip of the longest period of continuous decline since ONS records began in 1955.

The estimates mean the depth of the current slump is nearing the 6% decline seen between 1979 and 1981.

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The persistent decline of the ailing economy comes despite interest rates at a record low 0.5% since March, economic stimulus moves from the Government and an unprecedented 175 billion boost to the money supply through quantitative easing.

Although figures such as Chancellor Alistair Darling and Bank of England governor Mervyn King expect some modest growth by the end of this year, pressure on the economy will intensify in 2010 as stimulus measures such as the temporary VAT cut and the "cash-for-bangers" scrappage scheme come to an end. Unemployment is also steadily rising towards three million.

Today's figures showed the pressure on hard-hit consumers during the period with output from distribution, hotels and restaurants down by 1%.

Overall service output, which represents almost three-quarters of the UK economy, was expected to register growth but instead disappointed with a 0.2% decline over the quarter.

The construction sector also remained in the doldrums, falling 1.1% during the period. The beleaguered industry has now contracted by a mammoth 14.7% since the beginning of 2008.

Industrial production output, meanwhile, shrank by 0.7% and is down by 13.7% since the recession began.

Today's figures have been compiled with around 40% of the required data and could be subject to changes in the next two months when more information has been gathered.

The pound fell by almost 1% against the dollar and euro following today's weaker-than-expected Q3 performance. The FTSE 100 Index clung to earlier gains to stand 1% higher.

Vicky Redwood, an economist at Capital Economics, said a further extension to the Bank of England's quantitative easing programme looked even more likely at its meeting next month.

She added: "The fact that the economy is still contracting despite the huge amount of policy stimulus supports our view that the recovery will be a long, slow process.

"The economy now looks unlikely to grow by more than 1% at best next year.

Similarly, with a huge amount of slack still building, we continue to think that deflation is a key risk."