Shock for Alistair Darling as Britain stays in recession

Still optimistic: Alistair Darling said the public and businesses would eventually see a difference, but that it would take time

Shock economic figures today stunned the City by revealing that Britain is wallowing in its longest recession since records began.

The official statistics — which showed that the economy contracted by 0.4 per cent — prompted a furious new row about the Government's handling of the economy.

The figures, from the Office for National Statistics, mean that national output has now fallen for an unprecedented six successive quarters.

Economists immediately warned that the struggle to get the country's prospects back on track will be tougher than expected. But Chancellor Alistair Darling played down the bleak news and insisted that he remained confident that the economy would eventually "begin to see a difference", although he cautioned that it would take time.

His Tory counterpart, George Osborne, said: "Britain is now in the deepest and longest recession in its modern history. This news has destroyed Labour's claim that Britain was better placed than other countries to weather the storms."

Liberal Democrat Vince Cable said the figures were "a cold blast of realism".

The Chancellor's spending options for the autumn pre-Budget report were dramatically narrowed by today's economic gloom.

Analysts said the longer length of the recession meant he would have to impose more spending cuts than he had hoped to avoid higher borrowing.

The Conservatives seized on the figures as evidence that the Chancellor's strategy was failing and claimed Gordon Brown now had no chance of regaining his reputation for economic stewardship before the election.

With the City reeling and the pound dipping sharply, the Treasury said Mr Darling was not surprised at the news.

"I have consistently said that I did not see us returning to positive growth until the turn of the year," said Mr Darling.

However, only two days ago the Chancellor implied that he was convinced a return to growth would be announced when he cautioned a City audience against getting over-confident on the basis of "one set of data".

Responding to the figures on a visit to the Northern Rock offices in Newcastle, he said the fragility of the economy underlined the need to keep up public spending: "Two years ago I said this downturn was going to be more severe and profound than many people thought. We are coming through the recession and I am confident we will see a return to growth."

But shadow chancellor George Osborne said Labour's strategy was discredited as France and Germany had been growing for six months: "We now know that Gordon Brown's recession plan has not worked, and this news has destroyed Labour's claim that Britain was better placed than other countries to weather the storms."

The Prime Minister said in June in the Commons that Mr Darling was "leading the rest of the world in taking us out of recession". In September Mr Brown promised good news "pretty soon" and said the pre-Budget report may have to deal with "extra growth". Lib-Dem Treasury spokesman Vince Cable said the Government had to explain how it would deal with "burgeoning public debt" and called for radical action to curb unemployment.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said the silver lining for Mr Darling was that forecasts still put the Treasury on track not to exceed predicted borrowing of £175 billion: "If the economy is weaker and yet still delivering the receipts forecast, that's a good sign that we could bounce back."

Mr Emmerson said it was not surprising that the UK was lagging behind other countries as they had smaller financial sectors and were therefore hit less severely overall.

Downing Street said Mr Brown backed the Chancellor's assessment.

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