UK remains in recession

23 October 2009

The UK remains in a recession with the economy suffering a further 0.4% contraction between June and September.

The news will be a blow to optimistic economists, who were hopeful that the latest gross domestic product (GDP) figure – which measures economic output – would show the UK had excited the recession and returned to economic health. Some were even forecasting a 0.2% increase in economic output during the period.

In reality, the economy contracted by 0.4% during the third quarter, following a decrease of 0.6% during the previous three months.

The economy has now been shrinking for six consecutive quarters – the longest period of falling economic output since figures began in 1995.

The Office for National Statistics, which published the figure, reports a 0.7% decline in total production during the period, compared to a 0.5% fall in the second quarter. Mining and quarrying made the largest contribution to the decline, falling by 3.5%, compared with a fall of 0.6% in the previous quarter.

There was also an unexpected decline in the services sector - including catering and hotels - which was key to the drop.

However, this is just the first estimate of economic output during quarter three, and could be revised at a later date.

Vicky Redwood, UK economist at Capital Economics, says economic output is now 6% below its peak and, with still no return to growth, predicts a "long, slow" road to recovery.

"The economy now looks unlikely to grow by more than 1% at best next year," she adds. "Similarly, with a huge amount of slack still building, we continue to think that deflation is a key risk."

An extension to quantitative easing [the creation of new money] when the Bank of England next meets in November to discuss the base rate is now looking increasingly likely.

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