Recession looms as UK GDP falls
Recession edges closer as UK economy contracts 0.5 per cent
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Friday, 24, Oct 2008 07:37
The UK economy has suffered its first negative quarter of growth for over 16 years, bringing it closer to recession.
Between July and September and economy shrank by 0.5 per cent – much greater than estimated - following zero per cent growth in the preceding quarter.
The official definition of a recession is two consecutive quarters of negative growth – so without unlikely positive growth in the final quarter the UK will officially be in recession by the end of the year.
The data from the Office of National Statistics (ONS) showed continuing falls in production for manufacturing (down 1.0 per cent) and construction (down 0.8 per cent).
Results would have been even worse if it had not been for government spending – which in the previous three months ensured negative growth was not recorded.
Government output rose 0.4 per cent in the last three months after growing 0.2 per cent in the previous quarter. Agriculture, forestry and fishing output increased by 0.5 per cent.
"The third quarter fall in GDP was worse than expected," said David Kern, economic adviser to the British Chambers of Commerce (BCC).
"The economic outlook is serious. While it is important not to talk ourselves into a slump, urgent steps are needed to alleviate the worst consequences."
He went on to call for a 0.5 per cent interest rate cut in November and a further reduction to 3.5 per cent soon after, as well as a cutting in business tax.
A series of economic forecasts this week have projected UK economy to face recession up to 2010.
Today the Economist Intelligence Unit issued its forecast the UK economy will "stagnate" over 2009.
It predicts UK GDP growth will fall from 3.1 per cent in 2007, to one per cent in 2008 and it will contract 0.8 per cent in 2009.
The EIU states: "The UK economy has been badly hit by the fall-out from the ongoing finance turbulence... Massive stabilisation efforts by the government, involving a rescue package worth £400 billion, together with actions by the US and the euro areas, will support the UK banking system.
"But it will not prevent a reduction in credit to households, which in turn is aggravating wobbles in the housing market."
The body also predicts UK interest rates will fall to two per cent by June 2009, given the severity of the downturn.