It’s official – the UK is in recession

Kay Mitchell | | 0 Comments

Official figures have confirmed today that the UK is in recession after Gross Domestic Product fell by 1.5% in the fourth quarter of last year, following a 0.6% contraction in the three months prior to that.

This represents the biggest quarter-on-quarter fall since 1980.

Neil Mackinnon, chief economist at ECU Group, described the GDP figures as ’grim’ and they highlight the depth of the recession.

A country is considered to be in recession when it experiences two consecutive quarters of declining economic output.

It is predicted that this recession will be the worst since World War II as a result of a continued fall in house prices and the global financial crisis.

The official Government forecast is for a decline of 0.75% to 1.25% in 2009.

Meanwhile, data earlier this week found that unemployment in the UK reached 1.92 million in the three months to November – the highest level since September 1997 and takes the unemployment rate to 6.1%.

Earlier this week, the Ernst & Young Item Club said unemployment in the UK is to rise to 3.4 million in 2011 as companies cut costs in the wake of falling demand.

Furthermore, a survey by the Confederation of British Industry (CBI) has revealed that demand for products from UK manufacturers slumped in the last three months of 2008.

Many analysts believe that the recession could stretch into 2010 and be as severe as that of the early 1990s.

In the meantime, the pound continues to fall against the euro and the dollar. Following today’s official figures, the pound hit a 23-year low of $1.3595.

There have been many attempts to prevent the recession from being deep and prolonged with measures to kick-start lending and money injected into British banks to prevent them from collapse.

Earlier this month, the Bank cut rates to 1.5% – the lowest level since the Bank of England was established 315 years ago. It has been aggressively cutting interest rates to drive down the cost of lending to make it easier for businesses and consumers to access credit.

Furthermore, a cut in VAT in December was aimed at encouraging consumers to spend in a bid to boost the ailing retail sector.

Tags: consecutive, cut, financial crisis, GDP, interest rates, official, quarters, recession, sterling, two, UK, UK manufacturing, unemployment, VAT