Spending by UK households fell for a second consecutive quarter in the three months to September - the first back-to-back drop since 1991-92.
Spending by UK households fell for a second consecutive quarter in the three months to September - the first back-to-back drop since 1991-92 - according to official data yesterday that point to tough times ahead for the economy.
The Office for National Statistics yesterday confirmed the estimate it published last month that overall UK gross domestic product fell by 0.5% during the third quarter - the first contraction since the second quarter of 1992 and the biggest drop since the final three months of 1990.
Economists fear that the fall in economic output could be greater still in the fourth quarter.
UK household spending fell by 0.2% in the third quarter, the ONS said yesterday, after falling by 0.1% in the three months to June. The last time that it fell for two consecutive quarters was in the fourth quarter of 1991 and the opening three months of 1992, when the UK economy was struggling to haul itself out of recession.
The ONS noted there were sharp falls during the third quarter in spending on furniture, carpets and other floor coverings and cars.
Consumption also fell in the food and non-alcoholic beverage, and alcohol and tobacco categories. A 2.4% drop in fixed-capital formation during the third quarter meanwhile highlights the collapse in housebuilding.
The UK's dominant service sector contracted by 0.4% during the three months to September, the ONS confirmed yesterday.
Output of the distribution, hotels and restaurants sub-sector tumbled by 1.9% during the third quarter - a bigger drop than the 1.7% fall estimated initially - fuelled largely by a decline in motor trades and wholesale activity.
The third-quarter fall in UK manufacturing output was revised from 1.0% to 1.3%. The drop in output of the wider production sector, which takes in mining and quarrying, oil and gas extraction, and electricity, gas and water supply as well as manufacturing, was revised from 1.0% to 1.1%.
UK GDP in the third quarter was 0.3% higher than in the same three months last year. This was the poorest year-on-year increase since the second quarter of 1992, and one-fifth of the 1.5% recorded in the second quarter.
Chancellor Alistair Darling made no bones in Monday's pre-Budget report about the inevitability of the technical definition of recession - two consecutive quarters of contraction - being met with a further fall in overall GDP in the fourth quarter.
Jonathan Loynes, chief European economist at consultancy Capital Economics, said: "The breakdown of GDP in the third quarter confirmed that the UK economy is undergoing a major adjustment in the housing market and household sector which could keep overall economic activity falling for a prolonged period.
"Overall, the prospect of a protracted period of weakness in residential investment and consumer spending suggests that the forecasts of a relatively brief v-shaped' downturn recently produced by both the Bank of England and the Treasury are likely to prove too optimistic. We continue to expect GDP to drop by around 1.5% in 2009 and by another 1% or so in 2010."
Loynes added: "The key factor behind the unrevised 0.5% quarterly contraction in GDP was another sharp, 2.4% quarter-on-quarter, drop in total fixed investment. With Tuesday's business investment figures revealing only a modest drop of 0.2%, this was driven by a further collapse in residential investment, or housebuilding.
"But with housebuilding's share of GDP still well above its long-run average, this adjustment has significantly further to go. Even the Treasury predicted in the pre-Budget report that residential investment will fall by a further 11% or so next year."
Loynes believed the 0.2% drop in household spending during the third quarter confirms "the housing downturn is hitting overall consumer activity".
He added: "With house prices falling much further, unemployment rising and credit availability severely constrained, we expect household spending to fall by around 2% next year and further in 2010."
Loynes noted government spending provided a rare positive contribution on the expenditure side of yesterday's data, rising by 1% during the third quarter.
However, he added: "The extremely tight spending plans in the PBR suggest that rate of expansion will not continue."
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "On the expenditure side, the breakdown of the GDP was particularly unappealing with consumer spending, investment and exports all contracting. Indeed, GDP would have contracted even more in the third quarter but for strong government spending."
He added: "While contraction in the third quarter does not put the UK officially into technical recession yet it is impossible to dispute that we are there. Indeed, it looks horribly like the fourth quarter will see even deeper contraction as the heightened financial crisis and deepening global slowdown increasingly reinforce the problems facing the UK economy."
Archer forecast that UK GDP would contract by 1.5% in 2009 after growing by just 0.8% this year. He predicts GDP growth of 0.8% in 2010. He says the risks to these forecasts are "loaded to the downside".
Chancellor Darling on Monday predicted contraction of 0.75% to 1.25% next year and growth of between 1.5% and 2% in 2010.
Archer predicts the Bank of England's Monetary Policy Committee will cut UK base rates by a further half point to 2.5% on Thursday next week but believes it could reduce by as much as a full point to 2% at this meeting "to limit the length and depth of the recession". He added: "Furthermore, interest rates seem ever more likely to fall as low as 1% in 2009."
