OFFICIAL figures this week will confirm that the economy has been sliding into recession for months and could show that the downturn is deeper and started earlier than first thought.

Revised figures for gross domestic product (GDP) in the third quarter are set to show a fall of at least 0.5%. Several analysts believe that subsequent information, particularly on the dire performance of manufacturing, will see a sharper quarterly fall of 0.6%.

Whitehall officials are also braced for a revision of earlier data, which could change the timing of the recession.

Existing figures show that GDP was flat in the second quarter. That has allowed ministers to claim that Britain’s recession started later than in other economies, notably the eurozone and Japan. Any downward revision to the figures would mean Britain was in “technical” recession from the spring.

Economists are getting gloomier about the outlook. The Centre for Economics and Business Research, a consultancy, predicts that Britain will contract by 3% in 2009 and a further 0.7% in 2010, implying a long, deep recession.

Capital Economics, another consultancy, now predicts a fall of 2.5% in GDP next year, with a further drop of 1% during 2010.

This compares with the Treasury’s prediction of a decline in GDP of between 0.7% and 1.25% next year, followed by a recovery in 2010, when it expects to see the economy grow by between 1.5% and 2%.

Analysts surveyed by Ideaglobal.com, the financial research company, expect the Bank of England to press ahead with interest-rate cuts in the new year. Asked where Bank rate would be at the end of the first quarter, the median expectation was 0.75%, compared with 2% now.

The Bank’s monetary policy committee is widely expected to cut interest rates at its January meeting, but analysts are split on whether it will repeat this month’s full percentage-point cut, or opt to slow the pace of easing.

Business has welcomed the speed with which the Bank has cut rates, but there is concern about sterling’s slide. Last week the pound hit an all-time low of €1.05 and also dipped back below $1.50.

While its fall is good for exporters, business groups warn that, with overseas markets depressed, their members are seeing little benefit. “Manufacturers don’t, in general, welcome volatility in currencies,” said Steve Radley, chief economist at the Engineering Employers’ Federation. “If we were to see the pound stabilise, that would be welcome.”

Sterling’s fall has raised the cost of source components and other supplies from Europe. In most cases it takes time to switch these supply sources.

The fall accelerated last week as the US Federal Reserve cut its key interest rate to between zero and 0.25% and Charlie Bean, the Bank of England’s deputy governor, said there was no bar on the Bank following suit. The minutes of its meeting this month showed it had considered a rate cut of more than a percentage point.

Richard Lambert, the CBI director-general, said there should be an opportunity over time to strengthen Britain’s manufacturing base as a result of what he described as the pound’s overvaluation of recent years having been corrected. But he added that his immediate concern was not sterling, but the impact of the banking crisis throughout the economy.

“We need to find more ways of getting the public-sector balance sheet to substitute for the private-sector balance sheet,” he said.

Analysts say one headache for the authorities will be dealing with deflation – falling prices – in 2009.

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