Sharp drop in consumer spending

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Household spending fell 0.2% on the previous quarter, the biggest drop since the beginning of 1995, according to the Office for National Statistics (ONS).

Overall national output fell 0.5% during the third quarter of 2008, unchanged from the ONS' first estimate in October.

Household spending also saw its first decline in successive quarters since 1992, as it fell 0.1% in the first three months of this year.

The figures come in the week Chancellor Alistair Darling unveiled attempts to get shoppers spending again with a temporary VAT cut to 15% from Monday - aimed at putting £12.5 billion back in the pockets of consumers.

The ONS said there were falls in the consumption of food, alcohol and tobacco - with big-ticket items such as furniture and furnishings and car purchases particularly hard-hit.

The spending downturn came as shoppers were faced with soaring inflation and falling house prices, while banks have also been hiking up the cost of borrowing in the credit crunch. Household spending is now just 1.1% above a year ago, the ONS added.

Jonathan Loynes, chief European economist at Capital Economics, said: "The dip in household spending confirms that the housing downturn is hitting overall consumer activity hard. The 2.5% cut in VAT won't do a great deal about that."

While the 0.5% fall in output was unrevised, it represents the first quarter of economic contraction in 16 years and the UK's recession is set to be officially confirmed in January.

Countries such as Japan and the 14-member Eurozone are already officially in recession - defined as two successive quarters of negative growth.