Share prices and the pound were battered yesterday after the publication of official figures showed that the UK economy shrank for the first time in 16 years between July and September.
In a bigger than expected drop, output fell by a huge 0.5%, according to the Office for National Statistics.
UK share prices tumbled further on the news, with the FTSE 100 index down 343 points or 7.5% to 3744 in mid-morning trade.
The pound fell to $1.5595 – the first time it has fallen below $1.60 in the past five years.
Millions were wiped off bank share prices, with HSBC down 16.46%, Barclays 14.46% down, HBOS 19.0% and Lloyds TSB 6.8% down.
The 0.5% fall is the biggest drop in UK gross domestic product (GDP) since the first quarter of 1990.
The services sector, which represents three quarters of the UK economy, fell 0.4%, the biggest drop in 18 years.
Manufacturing output fell 1% while construction tumbled 0.8% compared to the previous quarter.
More bad news came for the UK economy yesterday, as OPEC announced a cut in oil production of 1.5m barrels per day, a move set to drive oil prices up again.
TUC General Secretary Brendan Barber said: ‘There is now no doubt that the UK is now in recession.
‘The government must now give the same commitment to fighting recession as they have done to saving the banking system.
‘Their response should have three aims.
‘They should make the recession as short and shallow as possible; make sure that those who did least to cause the downturn do not suffer the worst consequences; and ensure we emerge from it with a fairer, more balanced and sustainable economy.
‘They must not simply recreate the conditions that helped bring about the economic crisis.
‘Urgent action should start with a cut in interest rates by the Bank to below three per cent.
‘The newly unemployed should be given more help by reversing cuts in Job Centre Plus staff, increasing statutory redundancy pay and lifting the amount of redundancy pay that can be taken tax free.
‘Recent action to help homeowners facing repossession is welcome, but more will need to be done.’
Unite on Thursday called on finance companies not to make cuts in spending on skills training as the economic downturn gathers pace.
Chancellor Darling tried to put on a brave face over the capitalist debacle, saying: ‘It will be a difficult period, but I am absolutely confident we will get through it.’
