Between September and November of this year, the UK economy contracted 1% according to the National Institute of Economic and Social Research (NIESR)

This estimated decrease is worse than the drop in the three months up until October, which was at 0.8%.

As the rate of output decline is accelerating, NIESR now expects more than a 1% drop in the last three months of the year.

The economy also shrank by 0.5% between July and September of this year, but we will not find out officially what the actual decrease is for the final quarter of 2008 until January next year, when the Office for National Statistics brings out its report.

According to the generally accepted definition of recession, whereby if the economy of a country declines for two consecutive quarters, the UK will officially be in a repression if the report shows that the final quarter of this year shows a decline in economic activity, as expected.

The latest data from NIESR, who claim they have a good track record for forecasting GDP growth before the official figures are released, is just the latest in a long list of figures that have been released recently, claiming that we are most likely going to enter into a recession officially at the end of the year.

Director of NIESR has said that in his opinion, the government needs to put more equity into the banking system so that it can be better capitalised. However, he also warned that things are going to stay in a similar state to how they are now for a long time.

He said: “I would not be terribly surprised if output continued to fall in 2010,” even though the government has predicted that the recession will be short-lived and over by the middle of 2009.

NIESR have said that the recession is likely to be worse and longer than the government originally expected it to be. It said that: “The government faces the real risk that, despite the [stimulus] measures it took in last month’s Budget, output will fall more sharply than it expected to the end of next year.
“The main problem that it needs to address is very urgently is the availability of bank credit, and further interest reductions are likely to have much effect.”

The Bank of England and the government have recently not only reduced interest rates, but also tried to inject billions of pounds into the UKs banking system recently in order to reduce the effects of the repression.

Small banks, like Lloyds TSB and the Royal Bank of Scotland have introduced methods to increase lending to small firms in a bid to do their part to ease the financial pressure on companies suffering the effects of the repression.

Last week the Organisation for Economic Co-operation and Development (OECD) warned that the UK would face a serious economic downturn in 2009. On top of this, they also predicted that the economic output in the UK would be less than 1.1% next year, higher than any other G7 country, adding that unemployment would rise to over 8% by the end of 2009.