Britain's recession worse that feared as the economy shrinks at its fastest rate in 50 years

Britain's 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 per cent in the first quarter - much worse than the 1.9 per cent drop previously estimated - the Office for National Statistics (ONS) said.

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

It seems to show that the so-called 'green shoots' of Britain's recovery may prove to be no more than that as the country plunges into a long recession.

The figures come as central bankers warned that Britain could face a double dip downturn unless problems in the financial sector are properly addressed

The Bank for International Settlements (BIS), an organisation which includes the Bank of England, highlighted a risk that expansionary policies introduced to combat the recession might lead to a temporary pick-up followed by prolonged stagnation.
 

The UK output figures also showed the current recession began earlier than expected, with a 0.1 per cent 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 per cent decline in the final quarter of 2008 - the UK's output is now 4.9 per cent below the level seen before the recession.

The new figures 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 per cent 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 per cent 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 per cent during the quarter, while savings levels were also revised down.

The ONS said employee compensation fell 1.4 per cent 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 per cent 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.

Here is a look at some of the records revealed in today's data from Office for National Statistics (ONS).
 

• Output from production industries fell 5.1 per cent in the quarter, the largest fall since the first quarter of 1974, mainly due to declines in manufacturing.

• Construction output is estimated to have fallen by 6.9 per cent , much worse than last month's forecasts for a fall of 2.4 per cent. The figure is the largest since the end of 1980 and follows a drop of 5 per cent in the previous quarter. The largest declines were in new dwellings, private commercial work and household repairs.

• Household expenditure fell by 1.3 per cent, which is the largest fall since the final quarter of 1980. It follows a drop of 1.1 per cent in the previous quarter. The ONS said there were "significant falls" in spending on furniture, food and soft drinks, restaurants and hotels and spending abroad by UK tourists.

• Lower wages reduced the savings ratio among households to 3 per cent, compared with 4 per cent a quarter earlier. Disposable income fell by 2.4 per cent  in the period, against a 2.4 per cent  rise three months before.

• Output in the services sector fell by 1.6 per cent , representing the biggest fall on record after the business services and finance sector shrank by 2.5 per cent , following a drop of 0.6 per cent  in the fourth quarter of 2008. This reduction was most severe in computing, recruitment, legal services and management consultancy.

• The ONS also said Government expenditure rose by 0.2 per cent , with the volume of spending 2.8 per cent higher than the same quarter a year earlier.
  
  
  HIGH TIME LABOUR WENT AND THE PEOPLE OF BRITAIN TURNED TO THE NF!