"Today’s GDP figures were as dreadful as we feared and the UK is now officially in recession" said. Andrew Goodwin, Senior Economic Advisor to the Ernst & Young ITEM Club. A huge fall of 1.5% shows the depth and severity of the recession the UK is facing. While manufacturing plunged, dragging the overall figures down, services output fell 1% in Q4, the sector’s worst performance since 1979. The falls in output are more broad-based than the 1990s recession ITEM forecasts GDP growth to drop from 0.7% in 2008 to -2.7% this year and -0.5% in 2010.

"The huge fall of 1.5% in Q4 - the largest quarterly drop since 1980 Q2 - following the 0.6% contraction in Q3, shows the depth and severity of the recession the UK is facing. And it is possible that the Q4 figure will be revised downwards when the December Index of Production data is collated. The preliminary estimates indicate that the annual growth rate quarter-on-quarter growth fell from 0.3% in Q3 to a 17-year low of -1.8% in Q4."

""Manufacturing output plunged by 4.6% over the quarter, dragging the overall figures down, but services output fell 1% in Q4. This is the sectors’ worst performance since 1979 and shows that the falls in output are more broad-based than in the 1990s recession. Distribution has been particularly badly hit, confirming that a significant consumer retrenchment is underway."

"Higher frequency data suggests that the downturn intensified through Q4 and we expect this downward momentum to ensure another significant decline in GDP in 2009Q1. ITEM forecasts GDP growth to drop from 0.7% in 2008 to -2.7 this year and -0.5% in 2010."

Unemployment fears rise in small businesses

The Federation of Small Businesses (FSB) reported a dramatic rise in calls to its legal advice line on redundancies from concerned small businesses. The FSB's legal advice line saw an extraordinary 214% increase in calls in the fourth quarter of last year as small businesses cut back on costs and sought advice on employment issues and redundancies.

During the first half of last year the FSB saw a comparatively small 27% increase on 2007. But as the downturn spiralled, small firms' calls in the latter part of the year rose to a worrying 167% – nearly 8,200 calls.

Despite news headlines focusing on mass redundancies in big firms, small businesses have been hit just as hard. And with the Office of National Statistics confirming the UK is now in recession, the FSB is calling for small and medium sized businesses – which employ over half of the private sector workforce – to be given the support they need to tackle unemployment.

The FSB proposes a Five Point Plan that could not only keep people in jobs but also create over 400,000 new ones. The blueprint includes simplifying legislation; cutting payroll taxes; promoting part-time work; providing more opportunities for small businesses to bid for public contracts; and investing in training apprentices as solutions to rising unemployment.

John Wright, Federation of Small Businesses National Chairman, said: "Small businesses are being hit just as hard as big businesses in these difficult economic times as these worrying figures show. We cannot afford to lose our vibrant small and medium sized business sector.

"As we officially move into recession we must not forget that small businesses are the engine room of the economy and are actually in a key position to generate new jobs and avoid further redundancies. Small businesses are the sector to help pull us out of the recession and they need all the support they can get to do so. We call on the Government to put in place measures to support small businesses, following the key policies we have identified in our Five Point Plan."