Slashing Records Again

Between January & March the UK economy contracted 2.4%, the highest it has reached in 51 years according to the latest figures.

Initial estimates were for a 1.9% fall, so the situation is worse than analysts at the Office for National Statistics (ONS) previously expected.

The weakened output in the construction and manufacturing industries are being blamed for this sharp revision of decline that also indicated that the recession started earlier than previously thought.

The ONS now says that the recession began during the second quarter of 2008 rather than the third. Therefore, it has now been running an entire year.

All Areas Suffer

According to the ONS, compared to the first quarter of 2008, economic output shrank by 4.9% by the end of the first quarter this year – the biggest yearly fall recorded.

This means that it will also be more difficult for the Treasury to reach its forecast of 3.5% decline in the UK economy for the year that was made in this April’s Budget. Though the Treasury has said it will not be revising its forecast.

The 2.4% decline seen between January & March is the highest it’s been since 1958 when it shrank 2.6%. Though a decline of 2.4% was also seen in 1979 as well.

The output in construction also decreased in the first quarter of the year by 6.9%; manufacturing output fell 5.5%; and the service sector by 1.6% with banking and financial industries leading this fall at 2.5%. Real household disposable income also fell by 2.4% as saving rates also dropped to 3%.

Economy Extremely Weak

Senior economic advisor of Ernst & Young, Andrew Goodwin, said the figures were worse than expected.

He said: “We had expected a downward revision to GDP, given the plunge in construction output since the last quarter, but the scale of revision comes as a real shock, and highlights the extreme weakness of the economy in the early months of the year.”

George Osborne, the shadow chancellor said that GDP figures show that the recession has been “longer and deeper than we had thought”.

“This also means that in the future, unemployment will be higher and Labour’s debt crisis will be even worse.”

Vince Cable of the Liberal Democrats also said: “Rather than making promises on public spending that nobody believes, the Government must start making tough choices on whether it is going to cut spending or raise taxes to bring the economy out of the red.”

However, despite the revision for the first quarter of this year, it is expected that official figures for April-June will not be as bad as initially predicted. These are due to be published at the end of July.

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