Fresh recession warning for UK

The UK fell into recession in May, according to new GDP estimates.

Estimates on UK economic output from the National Institute of Economic and Social Research (NIESR) put GDP down 0.2 per cent in three months to September.

This follows a similar 0.2 per cent in the three months to July, meaning the UK recession – defined as two consecutive quarters of negative growth – began in May.

NIESR says the standard error of its estimates is 0.1 per cent 0.2 per cent.

The body now states the recession and the intensifying banking crisis should point to the Bank of England towards an interest rate cut of half a percentage point to 4.5 per cent on Thursday.

A NIESR spokesperson said: "We take the view that the Bank of England should cut the interest rate by 0.5 per cent at its next meeting.

"At the same time an interest rate cannot be expected to have much effect in the current circumstances and it is more important that the Bank of England works with the government on measures to prevent a sharp reduction in the availability of credit."

Nationwide, meanwhile, predicts a 30 per cent chance of a 0.5 per cent interest rate cut.

The building society puts a 60 per cent chance of a 0.25 per cent cut and ten per cent on a freeze.

Nationwide's consumer confidence index, also published today, points to continuing low morale.

The index dropped to 50 points – continuing its sharp decline over the last year – blamed on ongoing economic uncertainty, a further fall in house prices, rising unemployment and the impact of high food and fuel costs.

Fionnuala Earley, Nationwide chief economist said: "Consumers have been adjusting the way they feel about the current economic and employment situation since July and this continues to be the main driver behind the drop in overall confidence in September.

"While consumers recognise that there are some good deals available, rising unemployment, falling house prices and the continued turmoil in the financial markets are likely to mean that confidence will take some time to recover."

Two thirds of those questioned believe the current economic situation is bad. Just under a quarter of consumers think that the economic situation today is normal and only one in ten believe it to be good.