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British economy shrinks 0.6 pct in 3rd quarter

(Agencies)
Updated: 2008-12-23 20:15

LONDON -- The British economy contracted by more than previously thought during the third quarter of 2008, revised official figures showed Tuesday, stoking market expectations that the Bank of England may cut interest rates to near zero percent in the new year.

British Prime Minister Gordon Brown closes his eyes while attending the 'London Energy Meeting' in London, Friday Dec. 19, 2008. The British economy contracted by more than previously thought during the third quarter of 2008, revised official figures showed Tuesday. [Agencies]

The Office for National Statistics revealed that British gross domestic product during the July-September quarter fell by 0.6 percent from the previous three-month period, faster than the previous estimate for a 0.5 percent contraction.

The downgrade was due to a bigger than anticipated fall in manufacturing output, which accounts for around 15 percent of the British economy, and weaker services output, which makes up around two-thirds of GDP.

Britain is not yet in an economic recession, unlike several other major economies around the world, because the previous quarter's GDP growth was left unrevised at zero. The technical definition of recession is two consecutive quarters of negative growth.

But it's only a matter of time before Britain is confirmed to be in recession, with the government, the Bank of England and independent economists all predicting that the fourth quarter will contract.

The statistics office publishes its first estimate of the October-December quarter at the end of January.

"With GDP shaping up to fall by as much as 1 percent or more in the fourth quarter, providing a very weak platform for next year, we now expect the economy to contract by around 2.5 percent in 2009," said Jonathan Loynes, chief European economist at Capital Economics.

Analysts said the data gives the Bank of England further impetus to cut interest rates further in the new year, possibly down to zero percent. The bank has been aggressively cutting its benchmark rate to 2 percent in the last few months in an attempt to stem the recessionary tide amid easing inflationary pressures.

Separately, the statistics office said Britain's current account deficit swelled to 7.7 billion pounds ($11.4 billion) in the third quarter from 6.4 billion pounds in the previous quarter.