Britain’s economy is shrinking for the first time in 16 years, official figures showed yesterday, confirming that the country is in recession.

The toll from the credit crisis and housing crash has ended Britain’s longest unbroken run of growth since quarterly records began in 1955. City analysts gave a warning that the economy could shrink at an even faster pace in coming months.

Figures for gross domestic product revealed a worse-than-expected fall of 0.5 per cent over the past three months. A recession is defined as two consecutive quarters of negative growth, but a further contraction is inevitable.

The response on the financial markets was swift and brutal. The pound plummeted against the dollar and nearly £49 billion was wiped off the value of Britain’s leading companies. Alistair Darling, the Chancellor, sought to shore up confidence among fearful families and businesses. “It’s obvious now that our economy, other economies across the world, are moving into recession,” he said. “Yes, it’s going to be difficult, yes it’s going to be tough, but we can get through it.”

Charlie Bean, the deputy governor of the Bank of England, said that Britain was only “in the early days” of the fallout from unprecedented global financial convulsions. “This is a once-in-a-lifetime crisis, and possibly the largest crisis of its kind in human history,” Professor Bean said.

Shares in London slumped in response. The FTSE 100 closed down a further 204.5 points, or 5 per cent.The pound suffered one of its worst batterings since it was floated in 1971. At one point it was down by 8 cents against the dollar, before closing a little over 3.5 cents down on the day at $1.5837. In Europe, leading shares also fell by 5 per cent, while US blue-chips fell almost 4 per cent in a day of wild swings in financial markets.

Currencies and commodity prices also suffered. Oil prices continued to fall despite a decision by Opec to cut production by 1.5 million barrels a day. Benchmark Brent crude fell $3.94 to $61.98 per barrel – from a high of $146 in July.

Even gold, the traditional safe haven in times of panic, fell sharply, although it later rcovered. Pressure is growing on the Bank to deliver drastic cuts in interest rates. Its rate-setting committee is expected to order a half-point cut at the start of next month.

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