The UK economy shrank for the first time in 16 years in the last quarter, confirming fears that the country is slipping into a recession.

Economic output dropped 0.5 per cent between July and September, the Office for National Statistics revealed.

If the economy slows in the next quarter, the country will officially be in a recession.

This week Bank of England governor Mervyn King warned that Britain was entering a recession and Prime Minister Gordon Brown also said it was likely.

Falling house prices, the credit crunch, a sharp rise in unemployment and steep increases in the price of food and energy have all contributed to the downturn.