Recession tracker

WHAT IS GDP? Gross domestic product A measure of a country's economic activity, namely of all the services and goods produced in a year Q&A: GDP explained

The UK economy has shrunk for six consecutive quarters for the first time since records began in the 1950s.

UK gross domestic product (GDP) contracted 0.4% between July and September, and is a big surprise as almost every City analyst expected positive growth of around 0.2%.

An unexpected decline in the services sector was the key factor behind the drop, with the distribution, catering and hotels sector performing particularly badly.

Since its peak in the first quarter of 2008, the UK economy has slid 5.9%.

The contraction seems to further support the theory that recovery will be slow and painful, with unemployment remaining stubbornly high for some time to come.

After 16 years of growth, the collapse of the US housing market and effect of new financial instruments, such as collateralised debt obligations, caused the credit markets to freeze and started the first recession of the 21st century.

After failed government attempts to keep the pound within the European Exchange Rate Mechanism it crashed in value and high interest rates followed, as did a collapse in the housing market and consumer spending.

Policies to control inflation saw interest rates rise and public spending tighten. Manufacturing output fell by almost a third, with exports hit by higher exchange rates. Unemployment reached 3 million for the first time since the 1930s.

The recession of the 1970s marked the end of the post-war boom. Stock markets crashed following the collapse of the international monetary system. Matters were only made worse by the 1973 oil crisis and the three-day week.

The Great Depression followed the Wall Street crash of 1929. Unemployment more than doubled and the government was forced to abandon the gold standard, to reduce the value of the pound in a bid to aid economic recovery.

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The Treasury forecasts that GDP will contract by a total of 4.3% in 2009, recovering to growth of 1.3% in 2010.

And total government debt is projected to rise to £1.4 trillion, nearly doubling to 80% of GDP.

The worse-than-expected figures are likely to make the Bank of England consider extending its policy of quantitative easing.

Quantitative easing is the central bank's policy of printing money and using it to buy bonds from banks and other companies to help stimulate the economy.

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Sources: ONS, National Institute of Economic and Social Research