Shadow Chancellor George Osborne claimed that "Gordon Brown’s recession plan has not worked," after the economy unexpectedly shrank 0.2pc in three months to September. Economists had expected the economy to have seen its first growth since the start of last year.
Alistair Darling, the Chancellor, hit back and stuck to his forecast that the economy will be growing again by the end of the year.
“We’ve always said that we remain cautious as a result of the high degree of economic uncertainty," he said.
The sixth straight quarter of contraction means that Britain has now endured its worst recession since records began, and the weakness showed across all sectors. Production and construction industries shrank as expected, but a 0.2pc fall in output in the dominant services industry was a surprise.
The figures are “desperately disappointing” according to John Philpott, chief economist at the Chartered Institute of Personnel and Development. “This recession looks more like a depression. For most UK workers the pain of recession goes on and the subsequent ‘jobs light-pay tight’ recovery won’t feel much better.”
A combination of rising house prices, rising equity markets, positive business surveys, and a slowing rate of unemployment growth, had buoyed hopes that Britain would join France, Germany and Japan in emerging from the global downturn.
Sterling, which has risen sharply in the past few days, fell nearly 2 cents against the dollar to $1.6503 after the data were published.
The economy remains mired in the downturn despite a blitz of measures designed to prevent it tipping into depression that began with the injection of £47bn into Royal Bank of Scotland and Lloyds Banking Group in October last year.
The data, according to experts, made it more likely that the Bank of England would extend the life support currently helping to prop up the economy, by expanding its £175bn money printing programme next month
Former Conservative Chancellor Lord Lamont said: “I am not surprised by this grim figure. We have a long stony road ahead.
"The problem ahead is that the economy is dependent on the stimulus and the stimulus cannot go on forever,” he said.
“These figures make sobering reading, both for the Government and for British businesses,” said Adam Marshall, director of policy at the British Chambers of Commerce. “Continued intervention - including help for businesses to access finance, and incentives to promote investment - is still needed. Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”
The third quarter figures were the first estimate from the ONS and could be revised once it has gathered more data.
“Previous GDP figures have tended to be revised up more than down and the same may well apply here,” said Michael Saunders, economist at Citigroup.
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