UK economy still in recession GDP unexpectedly shrinks 0.4%

23 October 2009

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Figures from the Office for National Statistics (ONS) have revealed that the UK economy failed to return to growth in the third quarter of 2009. Gross domestic product (GDP) contracted by 0.4% - meaning the UK is still in recession.

The findings were unexpected, as economists had predicted GDP – a measure of the total goods and services provided by a country – would slightly increase between July and September.

The latest ONS data means the UK has now endured six consecutive quarters of negative economic growth; the first time this has happened since quarterly figures were first recorded in 1955.

Deep recession

The UK economy contracted 5.2% between July and September 2009 – a marginally smaller shrinkage than was seen in the second quarter of the year.

However the 0.4% fall in GDP has shocked some experts, who had suggested the UK might see a 0.2% rise in output during the third quarter.

Falling retail sales, a drop in industrial output and the poor performance of the services sector have been identified as key causes of the contraction. This latest drop in GDP means the UK economy has shrunk by almost 6% across the six quarters it has been in recession. It means the current recession is on a similar level to the one that hit Britain at the end of the 1970s.

Tackling recession

Some economists now predict that the Bank of England will decide to extend its £125bn quantitative easing programme when it meets on 4 and 5 November. Quantitative easing (QE) means injecting more money into the system in order to stimulate growth, although critics are likely to argue the economy’s continued decline suggests the strategy is not working.

James Daley, editor of Which? Money, says: ‘The ONS’s figures make for depressing reading, especially as a return to growth had been expected in the third quarter of this year.

‘However, they underline the seriousness of the situation we all face. This recession is now the longest on record in the UK, and its serious impact on consumers seems set to continue.'

If you’re concerned about the effects of the economic downturn on your wallet, check out the Which? guide to recession-proofing your finances. Our free money savings tips could also help you keep more pounds in your pocket by cutting your household bills, while the Which? redundancy survival guide is a great resource for anyone concerned about their job security.

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