British economy declines by 0.5%

BRITAIN'S ECONOMY contracted by a greater than expected 0.5 per cent in the three months to September - the sharpest quarterly decline since the end of 1990. It is the first quarterly drop in output since 1992 and follows a quarter where growth was flat.

Economists revised downward their already anaemic growth forecasts for 2009, with the widespread consensus that the UK is already in a recession even though a single quarter of falling output does not meet the technical definition of one. The data also led many to revise upwards their estimate of the size of the Bank of England's next cut in interest rates when its monetary policy committee meets on November 6th. The emerging consensus is for a half-point cut, with more to come in December.

Data from the Office of National Statistics showed the decline spread across the economy, sparing neither services, manufacturing nor production. The sole bright spots were growth of 0.5 per cent in agriculture - which accounts for about 1 per cent of the UK economy - and government spending, which is almost a quarter of gross domestic product.

Philip Shaw, economist at Investec Securities, who pronounced the results "truly dire", noted that without the contribution from public sector spending, GDP would have contracted by 0.8 per cent.

The data are the "flash estimate" of GDP, a number notoriously subject to revision. - ( Financial Timesservice)