UK economy remains in recession

LONDON
The British economy shrank 0.4 percent in the third quarter of the year, according to official statistics released Friday, dashing hopes that the country had emerged from recession.

The fall in gross domestic product for the sixth consecutive quarter takes the total loss of output since the recession began last year to 5.9 percent, leaving Britain in the grip of the longest period of continuous decline since the Statistics Office began taking records in 1955.

Economists had expected the update from the Office for National Statistics to be a close call between growth and contraction -- but most had plumped for slight growth and few had forecast a fall of that size.

The persistent decline comes despite attempts by the government and Bank of England to boost the economy, including holding interest rates at a record low of 0.5 percent since March, an unprecedented 175 billion pound ($290 billion) injection into the money supply and billions more through fiscal measures.



The pound dropped more than 1 cent to $1.65 after the economic update as markets factored in the likelihood that the central bank will now increase the so-called quantitative easing program -- buying assets from banks to boost the amount of money in the economy -- when it meets next month.

"Sterling is taking a hit on surprisingly weak GDP figures which means that the UK is not following France and Germany out of recession," said Arifa Sheikh-Usmani, an equity trader at Spreadex LTD.

Both Bank of England governor Mervyn King and Treasury Chief Alistair Darling have said they expect some modest growth by the end of this year.

But some economists have warned of a so-called "double dip," or "W-shaped" recession as pressures intensify in 2010 as some stimulus measures, like a temporary cut in sales tax, come to an end. Unemployment is also rising.

Friday's figures showed the pressure on hard-hit consumers, with output from distribution, hotels and restaurants falling 1 percent over the quarter.

Overall service output, which represents almost three-quarters of the domestic economy, was expected to register growth after recent gains but instead disappointed with a 0.2 percent decline.

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

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

Friday's figures were compiled with around 40 percent of the required data and could be subject to changes in the next two months when more information has been gathered -- the office's first GDP estimate for the previous April to June quarter was a contraction of 0.8 percent, which was later revised to a 0.6 percent drop.