updated 10/24/2008 10:26:20 AM ET 2008-10-24T14:26:20

Britain’s economy shrank between July and September, official figures showed Friday — confirming that the country is on the brink of recession and sending the pound into a dive against the U.S. dollar.

Britain’s economic output declined by 0.5 percent last quarter, according to the Office for National Statistics.

It was the first time since 1992 that Britain’s economy has contracted, and the fall was greater than analysts’ prediction of a 0.2 percent drop.

The figures put Britain halfway into a technical recession — defined as two or more consecutive quarters of negative economic growth.

“We’ll support the economy through this difficult time,” British treasury chief Alistair Darling told the BBC.

The economic contraction was led by steep declines in the hotel and restaurant and manufacturing industries, the statistics office said.

The manufacturing sector, which has been hit hard by a decline in consumer spending, is already in its own recession according to the figures. Industry growth shrank by 1 percent in the third quarter following a decline of 0.9 percent in the second quarter.

Earlier this week, British Prime Minister Gordon Brown and Bank of England Governor Mervyn King said they believed the country was heading for a recession, causing both the pound and the stock market to fall. Word that Britain is officially on the brink of a recession significantly widened those drops.

The pound fell 4.5 percent against the dollar to US$1.5497 as investors bracing for interest rate cuts in the wake of the economic data took their money elsewhere in search of higher yields.

Meanwhile, the FTSE 100 index of leading British stocks plunged nearly 8 percent to 3,766 as traders bet that the country’s economic contraction will make it more difficult for companies to pocket profits.

“Today’s figures will make grim reading for Gordon Brown, whose legacy for economic management has been seriously damaged by the current downturn,” said Richard Snook, economist with the Center for Economics and Business Research.

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