One of the City's leading financiers last night predicted a looming collapse of financial confidence in Britain as Gordon Brown received the twin blow of a fresh warning from a ratings agency over the budget deficit and figures revealing that the slump of the past 18 months is now officially the deepest since the second world war.

Terry Smith, chief executive of money brokers Tullett Prebon, said: "We will have a crisis of confidence in the credit worth of the UK. People won't be willing to buy gilts at anything like the current interest rate, or even possibly in this currency and we'll have an interest rate hike and/or a good, old-fashioned sterling crisis. Possibly both."

Smith's comments on Sky News came just hours after ratings agency Fitch said that the UK – along with France and Spain – needed to "articulate more credible and stronger fiscal consolidation during the course of 2010 to underpin confidence in the sustainability of public finances".

Failure to do so, the ratings agency added, would greatly increase the chances of a debt downgrade, which would increase the cost of servicing the national debt.

Earlier, the Office for National Statistics released data showing that Labour's attempts to boost growth had taken the edge off the recession in the third quarter but were not enough to prevent the slump extending into a record-breaking sixth quarter.

Confirmation that the UK is the only G20 nation still in recession sent the pound tumbling to a two-month low against the dollar, with sterling dipping below the $1.60 level after the ONS announcement.

Ministers will now have to wait until the next set of growth figures are published in late January before receiving evidence that their attempts to boost activity have worked. Public investment in buildings helped provide the biggest boost to construction output for more than six years, while the "cash for clunkers" scheme led to a pick-up in demand for cars.

Downing Street was last night taking comfort from evidence that the recession during 2009 has not been as deep as was feared at the turn of the year. One source said cuts in borrowing costs and active use of tax and spending policies had helped underpin the economy. When accompanied by individual measures such as an expansion to the programme to find work for the unemployed, tax credits to top up incomes where people needed to reduce hours, limit the scale of repossessions. He said: "Labour and housing markets behaved much better than expected, and significantly better than in the 1980s and 1990s recessions, and confidence has not hit the lows one might have feared."

The City had been hopeful that encouraging news from the construction sector and for investment would result in the ONS revising away its estimate of a 0.3% drop in gross domestic product in the three months to September, but gloomier news from manufacturing and services resulted in only a limited reassessment.

Officials said they now estimated that the economy contracted by 0.2% in the third quarter after a drop of 0.7% in the three months to June. The ONS said that new data showed that the UK had performed worse than originally believed, leaving the economy 5.1% smaller at the end of the third quarter of 2009 than it had been a year earlier. Since the start of the downturn in early 2008, GDP has dropped by 6.03%, marginally worse than the 6% fall during the manufacturing slump of 1979-81.

Shadow chief secretary to the Treasury, Philip Hammond, said: "Gordon Brown's claim to be leading the world out of recession rings hollow as the evidence mounts that his policies have failed. We need a change of direction to deal with mounting debts, and provide the confidence that the British economy is lacking."

Jonathan Loynes, chief European economist at Capital Economics, said: today's GDP figures were "a touch disappointing" in the light of figures last week showing a sharp upward adjustment to investment in the third quarter prompted by a 10% jump in government capital expenditure.

"The figure has gone up from an original estimate of a -0.4% drop, and may yet go up further in future releases. But this will make little difference and will leave the UK still looking weak compared to its major competitors."

Figures for American GDP were revised down for a second time today. Originally, Washington said the world's biggest economy grew at an annual rate of 3.5% in the third quarter but last month cut the estimate to 2.8%. Today, officials announced that the economy grew at an annual rate of 2.2%.