Page last updated at 10:44 GMT, Wednesday, 26 November 2008

Data confirms economy shrinking


The UK economy did indeed shrink 0.5% between July and September, the Office for National Statistics has confirmed.

Sticking to the same figure it initially announced last month, it is the first time the UK economy has contracted since 1992.

If the economy shrinks again between October and December then the UK will officially be in recession.

Separate figures showed that household spending fell 0.2% in the third quarter, the biggest drop since 1995.

The Office for National Statistics (ONS) added that it was also sticking to its earlier estimate that the UK economy expanded just 0.3% year-on-year between July and September, compared to the same quarter in 2007.

Rate cut hopes

Returning to the third quarter, it said the fall in output had been led by a sharp decline in sales of cars and household goods.

Shopper walking past M&S sale signs
The downturn has led to more and more retailers cutting prices

Taken together, the overall retail, hotels and catering sectors declined 1.9%, the sharpest fall since 1980.

"There is nothing here to suggest that the economy is not going to carry on contracting for a prolonged period," said Jonathan Loynes, chief European economist at Capital Economics.

The figures will increase expectations that the Bank of England will further cut interest rates in December.

Earlier this month it reduced rates by 1.5 percentage point to 3%.

The latest ONS data comes two days after Chancellor Alistair Darling said in his pre-Budget report that the UK economy will likely contract for the next four quarters.

Mr Darling now estimates that economic output will decline between minus 0.75% and minus 1.25% in 2009.

However, he expects growth to return in 2010 as the economy recovers.

Other international forecasts, such as that released by the OECD on Tuesday, suggest that the UK recession will be longer and deeper than that in other major economies.

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