Economy slows, shares plummet as recession looms

| October 24, 2008 | 0 Comments

According to the Office for National Statistics (ONS), the British economy shrank for the first time since 1992 as the UK flirts with recession.

Many reports this week have confirmed that the UK is on the brink of recession with Bank of England Governor, Mervyn King, issuing a recession warning. However, a forecast published over the weekend by the Ernst & Young Item Club claimed that Britain is now in a recession that will last for 12 months, with only a weak recovery in 2010.

Figures from the ONS revealed that economic output fell by 0.5% and should the economy slow in the final quarter of 2008, the UK will be classed as being in recession.

The 0.5% fall is far greater than expected, and according to Philip Shaw, chief economist at Investec, it is a shock that the decline is so large.

Furthermore, George Magnus, senior economic adviser at UBS, believes the recession could last for quite a long time, perhaps through next year, maybe even into early 2010.

Following the figures, chancellor Alistair Darling told the BBC that it will be a difficult period for the UK but he is confident that the country will ‘get through’ the slowdown.

The services sector, which makes up for around 75% of the UK economy, fell 0.4%, the largest fall since 1990, while the services sector (hotels and restaurants) experienced the largest fall, down 1.7%.

Meanwhile, manufacturing output fell 1% while construction fell 0.8%.

Elsewhere around the world, Ireland is already in recession, while France is expected to fall into recession.

A report earlier this month from economic think tanks believe that Europe’s largest economy, Germany, is close to recession. Furthermore, there are signs that the US (the world’s largest economy) is already in recession.

Following the news, London’s FTSE index plummeted over 8%, again crashing through the 4,000 mark. Elsewhere in Europe, shares fell with Paris and Frankfurt indexes down by around 9%.

Finally, sterling has fallen to $1.5889, this represents the lowest level in five years.

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