UK economy shrinks at fastest rate in over 50 years

THE recession-blighted UK economy shrank at its fastest rate for more than 50 years in the first three months of 2009, official figures showed today.

Output fell by 2.4% in the first quarter of the year – much worse than the 1.9% drop previously estimated – the Office for National Statistics (ONS) said.

The quarterly decline equals a 2.4% slump seen in 1974 and is the worst since a 2.6% fall seen in 1958.

The figures also showed the current recession began earlier than expected, with a 0.1% decline seen between April and June last year compared with previous estimates of zero growth.

Following the revision – which also saw a deeper 1.8% decline in the final quarter of 2008 – the UK's output is now 4.9% below the level seen before the recession.

The new figures for the first three months of this year reflect a much deeper-than-expected fall in construction activity during the period.
The UK's powerhouse services sector – accounting almost three-quarters of output – also endured its worst quarter on record with a 1.6% decline.

Liam Byrne, Chief Secretary to the Treasury, said the figures were "historic", reflecting the state of the economy months earlier.

"They don't change the judgment made by the Chancellor in the Budget that growth will return at the end of the year," he added.

"There have been some tentative signs that the fall in output is moderating and I remain confident but cautious about the prospects for the economy," Mr Byrne said.

Royal Bank of Scotland economist Ross Walker said: "Although to some extent this is 'old news', it does serve to emphasise the size of the hole out of which the UK must climb."

The squeeze on consumers in the current climate was underlined by a 1.3% fall in household spending – the biggest fall since 1980 – amid cutbacks on furniture and furnishings, food and drink, and foreign travel.

Households' disposable income fell 2.4% during the quarter, while savings levels were also revised down.

The ONS said employee compensation fell 1.4% between January and March – the biggest fall on record – due to lower wages, falling employment and lower-than-normal bonuses in the City.

Pay levels are now 1.7% below the same period a year earlier, it added.
But the figures also held out some support for experts forecasting a shallower decline in the second quarter of this year.

Stockpiles held by manufacturers and builders fell steeply – by £5.5 billion between January and March – suggesting that firms will soon step up production and generate growth, even at muted levels.

Recent survey data also showed signs of recession bottoming out in manufacturing, services and construction sectors, with some signs of life in the housing market.

"The survey data suggest we have at least stopped digging, but the economy remains on course for a lacklustre pace of recovery," Mr Walker added.

Chancellor Alistair Darling led a general discussion on the economy at this week's regular Cabinet meeting.

Prime Minister Gordon Brown's spokesman said of today's figures: "Of course the UK has been affected by what's happening in the global economy, and of course we got hit particularly because this is a global financial recession and we have a large financial sector.

"Despite that, what you are seeing is countries like Japan, Germany and the eurozone area as a whole, with a greater contraction than the UK in their economies."