UK economy slumped by 1.9pc in first three months of 2009 as recession deepens

The British economy contracted by 1.9pc in the first three months of the year, far more than economists expected, as Britain braces itself for decades of austerity.

By Angela Monaghan
The Telegraph, UK
24 Apr 2009

The decline in gross domestic product was sharper than the 1.6pc seen in the final three months of 2008, when Britain officially entered recession. Economists had expected expected a fall of 1.5pc. The Office for National Statistics figures show how widespread the crisis that began with the US banking sector has become in Britain, triggering a slump in the amount of goods and services that it produces. It is the sharpest quarterly fall in gross domestic product (GDP) since 1979, when it fell by 2.4pc in the third quarter. At that time, the country was buckling under the pressure of mass unemployment and an intense class war. The figure will embarrass Alistair Darling, who predicted in his Budget statement on Wednesday that in the first quarter the economy contracted "by a similar amount" to the fourth quarter of 2008. It also casts doubt over his prediction that the economy will shrink by a total of 3.5pc this year, which now looks too optimistic. "For that to be achieved, GDP would have to be broadly flat from the second quarter onwards, yet the surveys are already pointing to another fall of 1pc or so," said Vicky Redwood at Capital Economics. Although the economy is expected to fall at a slower pace in the months ahead, economists have warned it will not seem better for many as hundreds of thousands more jobs go. "Although one or two positive signs have started to appear, we face another 12-18 months of serious grief," said Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club. On Wedensday official data showed that unemployment reached 2.1m un February, the highest level since Labour came to power in 1997. The ITEM Club predicts that a total of around 900,000 jobs will be lost this year and a further 500,000 next year. The Chancellor said on Wednesday that there would be a return to growth by the end of the year and growth of 1.25pc in 2010 and 3.5pc in 2011. However, the figures were dismissed as "utter fantasy" by opposition MPs and were significantly more optimistic than most City forecasters. Shortly after Mr Darling’s speech, the IMF said that it believed the British economy would shrink by 4.1pc this year and another 0.4pc next year. The news helped drive sterling more than a cent lower against the dollar at $1.46 while the FTSE 100 shrugged off the news to trade more than 2pc higher.