The UK has officially entered a recession, following two quarters of negative GDP growth, but many predict things will get much worse before they get better.

The third quarter of 2008 saw the UK contract by 0.6 per cent and the final quarter shrank by a further 1.5 per cent, according to figures released today (23 January) by the Office for National Statistics.

This news comes as no surprise, but industry analysts and economists have differing views on how long it will last and just how bad it will be.

Many expect that the UK economy will shrink for at least six successive quarters, starting with the third quarter of 2008. Some predict that 2009 will see the economy shrink by two per cent, or even close to three per cent, in what could be the biggest decline since the Second World War.

Andrew Barker, chief operating officer at Skipton Financial Services, says, ‘Most indicators suggest that this recession is going to be difficult to shake off and we may not move into recovery for 18 months or more.  

And Stephen Gifford, chief economist at Grant Thornton, agrees that this recession could last for some time: ‘The sheer fall in GDP is staggering. Financial meltdown has probably been averted, but the economy has now entered a recession that is sure to be as bad as that of the early 1980s.’

He predicts, ‘UK output is likely to fall by more than two per cent in 2009, with the first signs of recovery early next year as interest rates fall close to zero to stimulate the economy and to counter deflation. But the real worry is unemployment – with the number of jobless set to rise to more than three million by the end of 2010, it will certainly be a worrying and depressing year for many UK households.’

Unemployment rose to 6.1 per cent in January and numerous businesses have crippled under the pressure of the slowing economy.

But when it comes to investing for the long term, there are some attractive options, as Andrew Barker points out: ‘From an investment perspective, recession brings many opportunities for those with a medium- to long-term horizon; for example, some structured products are extremely attractive. This is a once-in-a-lifetime investment opportunity if you are prepared to ride the short-term volatility.'

The government has twice bailed out the country's battered banks and the Bank of England has slashed the base rate as they together try to pull the economy back from the brink.

Chris Iggo, CIO, fixed income, AXA Investment Managers, says, ‘The Bank of England has reduced interest rates to 1.5 per cent and further cuts are likely. With the economy expected to contract in the first half of the year and inflation likely to fall close to zero by the summer, in our opinion there is virtually no chance of interest rates being increased this year.’