Record recession for UK economy

The UK economy unexpectedly contracted by 0.4 % between July and
September, according to official figures, meaning the country is still
in recession. It is the first time UK gross domestic product (GDP) has
contracted for six consecutive quarters, since quarterly figures were
first recorded in 1955. But the figures could still be revised up or
down at a later date, because this figure is only the first estimate.
GDP measures the total amount of goods and services produced by a
country. The pound fell sharply after the figures were released,
reflecting the fact that many observers had expected the UK to have
grown during the quarter. It was down 1.7 % against the dollar, at $1.
6323 , and down 1.9 % against the euro, at 1. 0859 euros. Quarterly
growth of 0.2 % had been expected in the figures from the Office for
National Statistics (ONS), although expectations had been tempered by
recent figures showing no growth in retail sales in September, and a
2. 5 % decline in industrial output in August. ANALYSIS Hugh Pym, BBC
chief economics correspondent There's no disguising how grim these
figures are. Almost every City analyst expected there to be positive
growth in the third quarter. Instead it was negative. That means the
recession in the UK is the longest since modern records began in the
1950 s. Germany, France and Japan have all come out of recession
technically and the UK hasn't. The decline has continued. And the
markets didn't really like the look of that. The foreign exchange
markets have been selling the pound. There's every indication that
it's going to be a long hard slog for quite some time to come as the
British economy tries to turn itself round. The unexpected decline in
the services sector was the key factor behind the drop, with the
distribution, catering and hotels sector performing particularly
badly. The UK economy's reliance on the service sector, and financial
services in particular, may be the reason why it is still in recession
when partners such as France and Germany exited in the second quarter
of this year. The economy contracted 5.2 % compared with the same
period last year, which was marginally better than the record figure
of 5. 5 % in the previous three months. It has now contracted 5.9 %
from its peak before the recession began. The worse-than-expected GDP
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. 'Awful' The £175 bn
already announced for the quantitative easing programme will have been
spent by next month, so the third quarter GDP number will be important
in deciding whether to extend it. Indeed, at the Bank's current rate
of spending, it is expected to have spent the whole £175 bn in the
next week. As the next Monetary Policy Committee ( MPC) meeting, at
which quantitative easing decisions are taken, is not until 4
November, that would leave it with a week with no extra cash to pump
into the economy. The figures were "awful with no positive news"
according to James Knightley at ING. "This clearly suggests that the
likelihood of an expansion in quantitative easing by £50 bn or so over
the next quarter is rising, although [it] is not a foregone
conclusion." Former MPC member Professor David Blanchflower said the
negative GDP figures should not have been a surprise. "There's been
very little sign among firms that things were very much better," he
told the BBC. "The public seems to have some more confidence - they
seem to have believed the talk about green shoots, but actually the
data haven't really looked that way at all." Intervention needed " The
bottom line is that we should take this as very much a first draft of
UK economic history - but clearly a disappointing one " Stephanie
Flanders, Economics editor Analysts said it is worrying that the
decline has continued despite the stimulus measures that the
government and the Bank of England have introduced. "Continued
intervention - including help for businesses to access finance, and
incentives to promote investment - is still needed," said David Kern,
chief economist at the British Chambers of Commerce. "Above all else,
business confidence must be nurtured to ensure that recovery is not
further delayed." 'Deeply disappointing' Chancellor Alistair Darling
said he had never expected to see growth before the end of 2009. "Our
job is to support the economy as we come through towards recovery," he
said. "[Growth] will come - I'm confident about that - and I'm
confident that businesses and people generally will begin to see a
difference, but it will take time." Shadow chancellor George Osborne
described the figures as "deeply, deeply disappointing". "There are
many millions of people who will be deeply concerned to see that
Britain is still in recession six months after France and Germany came
out of recession," he told the BBC. "It destroys the myth that Britain
was better prepared." Liberal Democrat Treasury spokesman Vince Cable
said the figures were "a cold blast of realism". "We've had a lot of
talk recently based on a booming stock exchange and prices of luxury
houses in London that somehow this problem was at an end, and it
isn't," he said. One of the measures expected to be a particular help
in the final quarter of the year is the change in VAT. The rate of VAT
is due to return to 17.5 % from 15 % at the beginning of January and
consumers are expected to step up their purchasing ahead of that
increase.