Britain’s economy shrank in the three months to September for the first time in 16 years, all but confirming that it is now in the grip of its first recession since the early Nineties.

Bleak official GDP figures showing that national income plunged by 0.5 per cent in the three months to the end of September, in the sharpest drop since the end of 1990, revealed that the toll from the credit crisis and housing crash has ended Britain’s longest unbroken run of quarterly growth since at least 1955.

The drop in GDP in the third quarter came after the economy stagnated, with zero growth, in the previous three months.

London's FTSE 100 index of leading shares plunged by 8.2 per cent, or 336.07 points, to 3,751.76 as investors digested the worse-than-expected figures. Sterling also fell further, to a new five-year low of $1.5616 against the dollar.

Alistair Darling, the Chancellor, told BBC News: "It’s obvious now that our economy, other economies across the world, are moving into recession.

“Yes, it’s going to be difficult, yes it’s going to be tough, but we can get through it."

Speaking before a decision by Opec, the cartel of oil producing nations, to reduce daily output by 1.5 million barrels, Mr Darling said: “The fact that oil prices have halved in recent week has been beneficial — if they go down that route it will be disappointing.”

However, while a cut to production was expected to increase the price of oil, Brent crude tumbled to a 17-month low of $61 a barrel as the GDP figures confimed that Britain is heading towards recession.

With output and income across the economy set to suffer a further, almost inevitable fall in the present quarter, Britain is almost certainly already in recession. But formal confirmation of that will not come until the release of GDP figures for the October to December period, due early next year.

Both the Prime Minister and Mervyn King, the Governor of the Bank of England, admitted for the first time earlier this week that the economy was probably entering a recession.

The detail of yesterday's figures added to the grim picture, showing every part of the economy except the farming, fishing and forestry industries, is now in decline. Over the past three months, manufacturing shrank by 1 per cent, output from utilities fell by 1 per cent, construction contracted by 0.8 per cent, and the services sector, which makes up three quarters of the economy, shrank by 0.4 per cent.

The threat of a consumer-led recession was emphasised as, within services, the retail, wholesale, hotels and restaurants sector slumped by a drastic 1.7 per cent in the third quarter.

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