Britain must wait to exit recession

LONDON: Britain is in its longest recession since 1955, official data showed Friday, confounding expectations for a return to growth in the third quarter and heaping more pressure on the government before elections.

British gross domestic product (GDP) unexpectedly slumped 0.4 percent between July and September compared with a fall of 0.6 percent in the second quarter, the Office for National Statistics announced.

Economists had widely expected Britain to exit recession in the third quarter with a return to growth of 0.2 percent after five quarters of shrinking GDP.

Reacting to Friday's data, finance minister Alistair Darling reminded people that the Labour government had predicted a return to growth only "at the turn of year."

However the main opposition Conservatives, expected to win next year's general election, described the contraction as "deeply disappointing."

"It's clear (Prime Minister) Gordon Brown's recession plan has not worked, there is no economic leadership in this country and we urgently need a change of direction to get this country working again," the Conservatives' economic spokesman George Osborne told Sky News television.

"There are many millions of people who will be deeply concerned to see that Britain is still in recession six months after France and Germany came out of recession. It destroys the myth that Britain was better prepared" to tackle the financial crisis.

GDP shrank by 5.2 percent in the third quarter compared with the July-September period in 2008.

Britain had hoped to join France, Germany and Japan in exiting recession -- defined as two consecutive quarters of contracting output -- while the United States is expected to have returned to growth in the third quarter.

"The third-quarter UK GDP data are a real shocker and desperately disappointing, showing that the UK economy remained in recession for a sixth successive quarter," said IHS Global Insight economist Howard Archer.

"It is impossible even to take comfort from the fact that the rate of contraction moderated to 0.4 percent quarter-on-quarter ... especially as the eurozone and the US seem highly likely to have grown in the third quarter."

A far weaker-than-expected performance from Britain's powerhouse services sector was behind the unexpected third quarter outcome.

"The main surprise was the 0.2-percent drop in services sector output," Capital Economics analyst Vicky Redwood said.

The current recession has so far seen the economy contract 5.9 percent, very close to the downturn of the early 1980s when the total shrinkage reached 6.0 percent.

Britain's economic recovery was already expected to be far from rosy ahead of a general election due by mid-2010 given the nation's massive and mounting debt and unemployment.

The public country's deficit ballooned to a record high in September as the state purse buckled under the weight of a recession that began in the second quarter of 2008.

Economists are warning that public borrowing this year would easily breach the government's official target of 175 billion pounds (285 billion dollars).

The number of unemployed in Britain climbed to 2.47 million in the three months to July -- the highest level since May 1995.

The Bank of England has sought to combat the recession with record-low interest rates and a radical policy of quantitative easing -- pumping new cash into the economy to help kick-start lending to businesses and individuals.