By Claire West

The CBI responded to figures showing a 0.5 per cent fall in GDP in the third quarter of 2008.

Richard Lambert, CBI Director-General, said: “This figure is worse than we expected, with the slowdown spreading right across the economy.

“This confirms the findings of the CBI survey earlier this week, which showed a sharp deterioration in business conditions and confidence over the past three months.

“The government measures to support the banking system in recent weeks have shown themselves to be very necessary. Without them we would be in a far worse position.

“We must now focus on the policies that will take us forward to recovery in the future.

“Today’s numbers support the view that the pace of inflation will fall rapidly.

“Business needs a further 0.5 percentage point cut in interest rates soon.

“Other policy initiatives also need to be urgently considered. Any plans that add to the cost of employment must be delayed to protect jobs.

“We must also find ways to stop small firms that are otherwise sound from being pushed over the brink, and to give people on the high street more money in their pocket.”

David Kern, Economic Adviser to the British Chambers of Commerce was of the same mind.

"The third quarter fall in GDP was worse than expected. As envisaged by the BCC's recent quarterly economic survey, all areas of the economy recorded declines. But, the declines in services and construction were even larger than most analysts predicted.

"The economic outlook is serious. While it is important not to talk ourselves into a slump, urgent steps are needed to alleviate the worst consequences.

"Interest rates will have to be cut without delay to 4 per cent in November, and to 3.50 per cent shortly afterwards. Business taxes will have to be cut in the Pre-Budget Report, and the government will have to insist that the vital flow of bank finance to small firms is maintained.”