City economists were back in the dock today after they wildly misjudged the depth of the recession.

Official figures showed the economy shrank by 0.4% in the third quarter of the year — making it the longest recession on record.

It stunned the Ctiy where so-called experts forecast economic output to be anywhere between flat and up by 0.7% in the third quarter.

The “consensus” opinion was for growth of 0.2% and not one of the 33 economists contacted by Bloomberg predicted another quarter of contraction.

It was just the latest in a long list of City forecasts which have proved to be a long way wide of the mark.

Economists were criticised for not spotting the looming recession and now appear to be misreading the recovery.

The 0.4% decline was also well below the forecast made by the Bank of England in the August inflation report.

The Bank predicted growth of 0.1% to 0.2% for the third quarter.

Philip Shaw, chief UK ecomist at Investec, who predicted growth of 0.2%, said the biggest shock came from the services sector which declined by 0.2%.

It was at odds with recent survey evidence which suggested the sector, which includes banks and stockbrokers, hotels and restaurants, has bounced back strongly in recent months.

The construction sector remained in the doldrums, falling 1.1%, while industrial output was down 0.7% and manfacutring 0.2%.

Shaw said: “While we had thought there was an outside chance of a small decline in GDP, we were taken aback by the extent of the retracement and the fact that the third quarter showed little improvement over the second quarter.

“Certainly the continued contraction of the service sector is totally at odds with more buoyant surveys. Moreover relatively warm weather might have been expected to lift agricultural output.

“It is possible that the figures are revised upwards at some point. We can but wait and in the meantime it looks as though the UK will be the last of the major economies to recover.”

The worst offender in the Bloomberg survey was Patrick Artus, a well known French economist based in Paris at Natixis Bank, who predicted growth of 0.7%. In London, the UK economics team at Barclays Capital went for growth of 0.3%.

The shocking figures also caught the currency markets by surprise and the pound tanked against the euro and the dollar.

Mark O'Sullivan, director of dealing at foreign exchange firm Currencies Direct, said: “Today's GDP figures have caught the market off guard causing sterling to slump against both the dollar and euro.

“This week's fairytale rally for sterling has been stopped dead in its tracks. With cold hard data underlining a distinct lack of growth in the UK economy, aggressive sellers are returning to the market once more.”