The British economy unexpectedly shrank by 0.4 percent in the third quarter compared with the previous quarter, meaning the economy has contracted for six consecutive quarters, according to figures released by the Office for National Statistics (ONS) Friday.
The data indicates that Britain is still in recession and the recovery will be long and fragile. Prior to that, economists predicted that the economy would turn to positive growth of 0.2 percent in the third quarter.
Compared with the same period last year, the economy suffered an annual decline of 5.2 percent in the quarter.
Britain witnessed a peak-to-trough GDP fall of 5.9 percent during the current recession, slightly lower than the 6 percent between the second quarter of 1979 and the first quarter of 1981.
The ONS said a disappointing decline in output from the services sector was the key factor behind the GDP drop. The sector contracted 0.2 percent in the third quarter led by the distribution, hotels and catering sub-sector, which dropped by 1 percent.
In addition, the production sector fell 0.7 percent over the quarter, with manufacturing and construction sub-sectors dropping by 0.2 percent and 1.1 percent, respectively.
The British economy would shrink 4.4 percent this year and the economy would grow by merely 1.3 percent and 1.5 percent in 2010 and 2011, respectively, according to a forecast made by the National Institute of Economic and Social Research.
Thus, the institute suggested any further extensions of the quantitative easing (QE) program should be biased towards the purchase of corporate paper rather than the purchase of government bonds in order to reduce financial stress in the business sector.
Since Britain is still in a recession, the Bank of England would have to further extend the QE program, said Karen Ward, an economist from HSBC, adding that "if they do choose to expand the program, we think it will be 25 billion pounds (about 41 billion U.S. dollars)."
After the worse-than-expected GDP data was published, the pound fell more than 1.3 percent against the dollar to 1.6406. Traders are concerned that Britain may turn out to be the only major economy still in recession./.