UK slides into record recession
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The UK economy contracted 0.4% in Q3, defying expectations of growth and meaning that the UK is in the grip of the deepest recession since World War II.
Economists had predicted UK GDP to rise by an average of 0.2% this quarter.
This would have meant the UK had emerged from recession, technically defined as two quarters of negative growth.
UK GDP was down 0.4% compared to the previous three months and marked a decline of 5.2% since Q3 last year, figures from the Office for National Statistics reveal.
Charles Davis, senior economist at the Centre for Economics and Business Research, says that the delay in recovery will hit public finances hard with the figure of public borrowing, forecast by the Treasury to be £176bn, at risk of spiralling closer to £200bn.
He also argues that given the unepected decline in GDP the Bank of England may be forced to continue with its policy of quantitative easing.
He says: “Ultimately, although surprising on the downside, the latest GDP figure supports our view that the UK economic recovery is likely to be anaemic and that substantial policy stimulus will continue.
“With the Bank set to publish its inflation report and reassess quantitative easing in November, an extension of the asset purchase facility is on the cards.”
The CEBR is predicting the final amount spent on asset purchases to grow from £175bn to £250bn, with interest rates staying at 0.5% through 2010 and into 2011.
Vince Cable, shadow chancellor for the Liberal Democrats, says: “For all the hopes of a quick recovery, these figures make it clear we are still in the longest and what could yet become the deepest recession on record.
“For all that has been thrown at the economy to try and stimulate a recovery it is clear that massive structural problems remain, particularly in the banking sector.
“This news adds to serious concerns over the realism of government plans to deal with the burgeoning public debt.”
He adds: “It is critical ministers spell out a credible path as to how they will deal with the deficit.
“With the legacy of unemployment likely to remain for years after the end of the recession, we need radical measures to avoid repeating the mistakes of the 1990s which left millions on the scrapheap.”
