End-of-recession hopes dashed on Black Friday

Economic gurus are red-faced and reeling today after new figures show the British economy is continuing to contract. GDP in the third quarter dropped 0.4 per cent, a far weaker reading than expected. 
 
Not only are hopes dashed that Britain is lifting out of the worst recession since World War II, but the statistics throw serious doubt over the effectiveness of the government's £175bn stimulus programme. Sterling was slammed on the news, dropping almost two cents on the dollar after the announcement.
 
Astonishingly, not one of 33 economists polled by Bloomberg predicted a contraction; they had forecast a slight gain, the first since early 2008.
 
In fact, nearly everything has got worse. Manufacturing shrank at a 10 per cent annualised rate; construction is down 13 per cent; consumer spending, as indicated by hotels, catering and distribution, significantly lower.
 
"Britain's so far plucky spenders appear to have thrown in the towel," says the Financial Times.
 
The numbers come after Bank of England deputy governor Paul Tucker warned any recovery was likely to be "anaemic". He said a clear picture of economic activity would not become apparent until next spring or summer.
 
With no economic bounce now expected to arrive by the election, the dismal numbers throw into question the success of so-called quantitative easing and appear to dash hopes that Britain will follow the BRIC nations, the US, Germany and France, out of recession anytime soon.
 
"Having pumped in so much money, and still seeing a decline in GDP, is damaging from a perspective of confidence and expectations for recovery," said Stephen King, chief global economist at HSBC Holdings. "They'll be thinking very hard about whether to extend quantitative easing. They need to do something to show they care about the economy."
 
Some analysts said the figures could be off. UK house prices, after
all, are up slightly and there is consensus in the markets of a
pick-up in economic activity.

"It seems to me inconceivable that the recession is deepening and the housing market is recovering," Steven Bell, chief economist at
London-based hedge fund GLC Ltd, told Bloomberg. "The last refuge of the failed forecaster is to challenge the statistics, but that's what I'm left with."

Furthermore, the Office for National Statistics, which put out the data, has a poor record of explaining what's going on in the economy. The latest figures are, said Goldman Sachs starkly: "Unbelievable. Literally."

But if they are correct, what are the options for Chancellor Darling or a new government next year?

"With fiscal policy all but exhausted, interest rates already at zero,
and consumers apparently shutting their wallets, there are only two buttons left for the authorities to push," says the FT. "The first is more quantitative easing. The second is sterling."

If the economy remains resistant to stimulus, the paper explained, the government will hardly be able to raise interest rates. Instead, sterling will fall. "The Bank of England seems happy to see it fall." ·