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UK economy officially on the brink of recession

This article was posted on Oct 24, 2008 and is filed under Market Outlook

LONDON: Britain’s economy shrank for the first time in 16 years between July and September, official figures showed Friday. The country’s economic output declined by 0.5 percent last quarter, according to Britain’s Office for National Statistics.

It was the first time since 1992 that Britain’s economy has contracted, and the fall was greater than analysts’ prediction of a 0.2 percent drop.

The figures put Britain halfway into a technical recession _ defined as two or more consecutive quarters of negative economic growth.

Earlier this week, British Prime Minister Gordon Brown and Bank of England Governor Mervyn King said that they believed the country was heading for a recession.

The news that Britain is officially on the brink of recession will increase expectations that the Bank of England will the cut its interest rate from the current 4.5 percent to stimulate spending.

The pound fell below US$1.60 against the dollar for the first time in five years Friday morning in anticipation of the report. Lower interest rates tend to weaken a country’s currency, as investors take their money elsewhere in search of higher yields.

Britain’s FTSE 100 index of leading British stocks
also fell in morning trading _ as investors bet that the country’s economic contraction will make it more difficult for companies to pocket profits. The FTSE was down 5.9 percent at 3,849 at the time of the report’s release.

source: Economictimes

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