Industry | 2009.10.23
UK in longest recession on record
• Comment: How the economists got it wrong again
• Chancellor believes growth will return this year
• All sectors of the economy were weak
The British economy is mired in its longest recession on record, as government figures out this morning showed a shock 0.4% drop in gross domestic product (GDP) in the third quarter of the year.
The figures confounded widespread hopes that the economy had returned to growth after five consecutive quarters of recession .
City economists had almost unanimously expected a small increase in GDP . Quarterly records go back to 1955 and show there has never until now been six quarters of contraction in a row.
The pound fell sharply against the dollar and euro as dealers digested the bad news. The figure left output 5.2% lower than the same quarter last year and about 6% lower overall in this recession.
Straight after the figures were released, Alistair Darling reiterated his view that growth will return to Britain by the end of the year. "I\'ve always been clear that growth will return at the turn of the year, as my budget forecast confirmed ," he said. "We\'re facing the worst global financial crisis and recession in 60 years. We\'ve always said that we remain cautious as a result of the high degree of economic uncertainty."
Economists were unimpressed . Nick Parsons at National Australia Bank said: "Darling says he stands by his 2009 growth forecast. This is utter nonsense. He forecast -3.5% at budget time and if we are to hit the forecast, we would need to see growth of more than 4% in the fourth quarter.
All sectors of the economy were weak, with the once powerful service sector shrinking by 0.2% and industrial production down 0.7% over the third quarter. The biggest drag on the economy were the hotels, restaurants and motor trades sector, which declined by 1%, and the construction industry, down by 1.1%.
Only government activities showed a "very small" increase in growth, according to the Office for National Statistics, which released the figures this morning.
Wait till 2010
The numbers come after Bank of England deputy governor Paul Tucker warned any recovery was likely to be "anaemic" and the true picture of the economy\'s health would not become apparent until next spring or summer.
TUC general secretary Brendan Barber said he hoped today\'s figures would "head off the growing signs of complacency" on an economy which remains "extremely fragile".
"Even if we had achieved a technical recovery today, it would not feel like a recovery to the thousands losing their jobs or afraid that they will join the dole queue in the months ahead when unemployment will continue rising. It takes more than a statistical read out and the return of big bank bonuses for a real recovery," he said.
Philip Shaw, chief economist at Investec, said: "We thought there was a chance that the economy could contract, but not by this much ... the numbers do come as a big shock."
Peter Dixon, economist at Commerzbank in London, said the figures made it more likely the Bank of England would next month extend its policy of flooding the economy with money, known as "quantitative easing".
At IG Group in central London, traders\' faces fell flat as the dismal figure sprang up on their screens. Instead of the expected cheering, they looked at each other in disbelief.
Tim Hughes, head of sales trading at IG, said: "Clearly this is disappointing. The reaction to the figure is that the value of sterling has fallen and that the Bank of England will have to carry on with quantitative easing and leave interest rates at a low level."
He added that the uncertainty means volatility, which will create opportunity for IG\'s clients, but that has to be weighed against the fact that it can jeopardise their jobs.
For more information, please visit
http://www.guardian.co.uk/business/2009/[...]conomy-lonest-recession-record
