The UK economy shrank by 2.4 per cent in the first quarter at the fastest rate in more than 50 years and far worse than expected, according to official figures today.
Revised figures from the Office for National Statistics (ONS) showed that, between January and March, the economy contracted by its fastest pace since 1958. The ONS revised down its initial estimate, showing a contraction of 1.9 per cent.
Analysts had predicted that the revised numbers would show a 2.1 per cent fall in GDP.
Today’s shock data is in part due to a change in methodology in the way that the ONS calculates construction and services output, but will do nothing to boost Alistair Darling’s hopes of a recovery by the end of the year.
Construction output was revised down from -2.4 per cent to -6.9 per cent in the first quarter, but there was also a bigger than expected drop in output from the services sector, that accounts for more than two thirds of the economy, which was revised down from 1.2 per cent to 1.6 per cent.
Industrial output was revised up slightly to -5.1 per cent, from the initial estimate of -5.3 per cent.
Analysts said that the figures underlined the fragility of the economy, with some revising down their expectations for economic growth this year as a result.
“The downward revision to first quarter GDP growth clearly leaves an extremely weak platform for growth this year. The average GDP growth in 2009 now looks likely to be – 4 per cent or weaker rather than the -3.5 per cent we previously expected, ” said Jonathan Loynes, chief European economist at Capital Economics.
The data also showed GDP fell in the second quarter of 2008, meaning the recession started earlier than was initially thought. The country has now been in recession for a full year.
Today’s figures mark a huge setback for Mr Darling and the Treasury. They have acknowledged that the UK economy will shrink by 3.5 per cent this year but are predicting that Britain will return to growth, of around 1.25 per cent, next year and in subsequent periods.
In his April Budget, Mr Darling forecast a 1.6 per cent contraction in the UK economy during the first three months of the year.
Last week, the Organisation for Economic Co-operation and Development, a respected European think-tank, forecast that the UK economy would shrink by 4.3 per cent this year.
It said that there would be zero growth next year.
The OECD is also predicting that UK unemployment will top 3 million over the next 12 months, in a further blow to Mr Darling’s optimism about a recovery.
The ONS said today that, year on year, GDP had fallen 4.9 per cent, the biggest drop on record. It had previously estimated a fall of 4.1 per cent.
The revised figures sent sterling down to around $1.6605 against the dollar, paring back the morning’s previous gains.
June 30, 2009
Miles Costello, Grainne Gilmore
Source: Times Online