The United Kingdom is one of the first countries to report output data for the third quarter of 2009. Other countries will report shortly. The fall of o . 4 per cent in GDP announced by the Office for National Statistics on Friday 23 October was, for some, a shocker. It is the sixth quarter in a row that we have seen GDP fall, the first time this has happened since record- keeping for this measure began, 60 years ago. Output has now dropped by 6.1 per cent from its peak. Contraction in services has been around 4. 6 per cent. Though substantial, this is still less than the 14.7 per cent drop in manufacturing output and 15.6 per cent in construction. These drops suggest that any possible improvement in the labour market situation is a long way off.

To put the drop in output in context, it is less than that experienced by Finland, Germany, Ireland, Japan, Spain and Sweden, but more than in Denmark, the Netherlands and the US, for example. The countries that have experienced the biggest drops in output have been those most exposed to world trade (Germany, Japan and Sweden), those that have experienced rapid increases in house prices (Ireland, Spain and the UK) and those with large financial sectors (the UK and the US). The UK was particularly exposed to this global shock because of its relatively large financial sector and substantial house -price bubble, considerably larger than was observed even in the US.

Blurring past and future

The news on Friday caused consternation among City economists and commentators, especially those who had been seeing green shoots all round and had expected positive growth of at least 0.2 per cent. I was especially taken by a comment made by Kevin Daly of Goldman Sachs, reported in the Financial Times. He argued that preliminary GDP figures for the past decade contained "no statistically useful information about growth".

That seems too strong. I think there is every prospect that the figure will be revised down rather than up, as has happened in previous quarter releases in this recession. But what has happened is a good illustration of the "Gieve law", which operates in a downturn, and is named after my friend Sir John Gieve, a former deputy governor of the Bank of England. The Gieve law goes like this. The most recent data release is considered to be the worst it is going to get, so this is the trough until the next data release, which maybe worse again. So we have reached a new trough, until the next release when the data is worse, and so on.

The Monetary Policy Committee of the Bank of England, in its most recent forecast, wrongly predicted that there would be positive growth in the third quarter of 2009.