MercoPress. South Atlantic News Agency

UK economy shrinks 1.9% in the first quarter of 2009

The UK economy shrank 1.9% in the first three months of 2009, according to gross domestic product (GDP) data from the Office for National Statistics. The contraction was much worse than had been expected and was the biggest three-month decline in GDP since the third quarter of 1979.

“It's the weakest in 30 years - that's extremely soft,” said George Buckley at Deutsche Bank. GDP measures the value of all the goods and services produced by a country.

A decline of about 1.5% had been expected following the contraction of 1.6% in the previous three-month period.

Taken together, it was the worst six-month decline in GDP since the ONS began publishing the figures. The ONS figures also showed that GDP for the year to the end of March was down by 4.1%.

The latest figures mean that GDP has now shrunk for three quarters in a row, and confirm that the economy is still deep in recession.

The biggest contributor to the decline was the manufacturing sector, which shrank by 6.2% in the first three months of the year, having decreased by 4.9% in the previous quarter.

“The last six months has seen the sharpest fall [in GDP] on record and the manufacturing number... is a record,” Jon Beadle from the Office for National Statistics (ONS) told the BBC.

Only two sectors managed any growth at all: government output and the agriculture, forestry and fishing sector, both grew 0.3% in the period.

Analysts suggested that this would be the worst contraction in the current recession.

“I very much doubt that GDP is going to contract at these sort of rates for any longer, but I do think it will still contract all throughout 2009,” said George Buckley at Deutsche Bank.

“So there's still a lot of weakness to come, but not as weak as we're seeing today”

The worse-than-expected figure casts doubt on the chancellor's prediction that GDP for the whole of 2009 would only shrink by 3.5%.

“A contraction of at least 4% is much more likely,” said Benjamin Williamson at the Centre for Economic and Business Research.

“Our latest forecast is for a 4.5% contraction this year, making 2009 the steepest single year contraction in economic activity since the 5.1% fall in 1931.”

The International Monetary Funds predicted a 4.1% decline for 2009.

Chief Secretary to the Treasury Yvette Cooper said the government stood by its forecasts. “We believe the economy will start to recover towards the end of this year,” she told the BBC.

But Conservative leader David Cameron said the figures showed the government had a wildly optimistic view of the state of the UK economy:

“The chancellor gave a set of forecasts in the Budget,” he said. “Everyone said they were over optimistic, and already, just a few days later, the next lot of official figures coming out shows that he's been over optimistic, shows that what the government's been doing hasn't been working.”

James Knightley, an economist at ING Bank, said: “Today's GDP report does again highlight how optimistic Chancellor Darling was in his budget assumptions.”

Alistair Darling had also predicted that GDP in the first three months of the year would be at a similar level to that seen in the previous quarter.

The ONS cautioned that the GDP figure was only its preliminary estimate and could be revised. There was some better news for the economy in the latest retail sales figures.

Retail sales unexpectedly rose 0.3% in March, making them 1.5% above the level seen in March 2008.