Page last updated at 10:50 GMT, Wednesday, 25 February 2009

UK economy contraction confirmed

A High Street
The recession has hit the High Street hard

The UK economy shrank by 1.5% in the last three months of 2008, official figures have confirmed, unrevised from the initial estimate issued in January.

However, the data also showed a 0.7% contraction in the July to September quarter, worse than the original estimate of a decline of 0.6%.

It means fourth quarter GDP for 2008 was 1.9% lower than a year previously, against the original estimate of 1.8%.

The figures confirm the UK is in its first recession since 1991.

The widely accepted definition of a recession is two consecutive quarters of negative economic growth.

The figures, from the Office for National Statistics (ONS), showed that manufacturing and production output figures between October and December were revised down sharply, despite hopes that the weak pound would help exporters.

However, figures for the services sector were revised up slightly.

Intervention efforts

There had been concerns that the fourth-quarter figures would be revised down.

And chief economist at the British Chambers of Commerce (BCC), David Kerns, said that while this had not happened, it was "very worrying" that manufacturing and production had been cut further.

"Against this background it is imperative for the Government, the Bank of England and the Monetary Policy Committee to persevere with vigorous corrective measures.

"As well as stimulating demand it is important to reduce the huge regulatory burden facing businesses."

Efforts to prevent the recession deepening have been widespread, though critics say they have not gone far enough.

The Bank of England has aggressively cut interest rates to 1% - aimed at driving down the cost of lending and making it easier for consumers and businesses to access credit.

The Bank is also set to carry out a series of measures - known as quantitative easing - aimed at increasing the amount of funds in the UK banking system

The government has introduced a temporary cut in value added tax (VAT), from 17.5% to 15%, in an attempt to encourage consumers to spend and boost the retail sector and wider economy.

It is also in talks with banks over a plan to insure them against potential losses on existing risky loans.

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