Economic slump worst in fifty years

The UK economy shrank at its fastest rate for more than 50 years in the first three months of 2009

The UK economy recorded its sharpest decline in more than 50 years during the first quarter of 2009, figures have shown.

And revisions to figures revealed the current recession began earlier than first thought, with a 0.1% decline seen between April and June last year compared with previous estimates of zero growth.

Output fell 2.4% in the first three months of the year - the fastest rate since 1958, the Office for National Statistics (ONS) said.

The economy also showed an annual decline of 4.9% - the biggest fall since ONS records began in 1948.

The first-quarter decline of 2.4% is much worse than the 1.9% first estimated and comes after bigger-than-expected falls in construction and the UK's key services sector.

The plummet in activity between January and March was almost equal to the 2.5% fall suffered during the whole of the recession in the 1990s, Investec's David Page said.

He warned: "The economy is now likely to undergo a peak to trough adjustment in excess of 5%, nearly as big as the overall 5.9% collapse seen from 1979-1981."

The scale of the decline could put pressure on Chancellor Alistair Darling's forecasts for the public finances this year.

But chief secretary to the Treasury Liam Byrne, 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.

Shadow chancellor George Osborne said: "We hope the recovery comes as soon as possible but sadly we now know this recession has been longer and deeper than we had thought."

Liberal Democrat Treasury spokesman Vince Cable warned: "Such a dramatic collapse in growth can only make the public finances worse.

"Rather than making promises on public spending that nobody believes, the Government must start taking tough choices on whether it is going to cut spending or raise taxes to bring the economy out of the red."

The squeeze on consumers in the current climate was underlined by a 1.3% fall in household spending - the biggest drop since 1980 - amid cutbacks on furniture and furnishings, food and drink, and foreign travel.

Households' disposable income fell 2.4% during the quarter, while savings levels were also revised down.

The ONS said employee compensation fell 1.4% 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% 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 the recession bottoming out in the manufacturing, services and construction sectors, with some signs of life in the housing market.

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 survey data suggest we have at least stopped digging, but the economy remains on course for a lacklustre pace of recovery."

Recession: Facts and figures

The UK economy shrank at its fastest rate for more than 50 years in the first three months of 2009. Here is a look at some of the records revealed in the latest data from Office for National Statistics (ONS).

- Output from production industries fell 5.1% 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%, much worse than last month's forecasts for a fall of 2.4%. The figure is the largest since the end of 1980 and follows a drop of 5% in the previous quarter. The largest declines were in new dwellings, private commercial work and household repairs.

- Household expenditure fell by 1.3%, which is the largest fall since the final quarter of 1980. It follows a drop of 1.1% 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%, compared with 4% a quarter earlier. Disposable income fell by 2.4% in the period, against a 2.4% rise three months before.

- Output in the services sector fell by 1.6%, representing the biggest fall on record after the business services and finance sector shrank by 2.5%, following a drop of 0.6% 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%, with the volume of spending 2.8% higher than the same quarter a year earlier.

Economic estimates reflect change

The challenge posed to the nation's number-crunchers by such a rapid economic decline is underlined in the large-scale revisions seen in the latest figures.

The Office for National Statistics (ONS) itself admitted changes were "larger than usual, reflecting greater uncertainty in measurement during a period of rapid change in economic activity".

During the first three months of this year, construction output fell 6.9%. This decline is based on firm data and was almost three times as much as shown by models used in previous estimates.

More complete data for UK services also showed a record decline. Statistical fine-tuning such as updating the weightings given to various parts of the sector and shifting the base period for its figures from 2003 to 2005 added to the impact.

Improved measurements of bank interest payments and receipts have also been included, particularly resulting in higher payments by households.

The ONS publishes three estimates of GDP for every quarter. The first has around 45% of the data required, although the third has around 80%.

The latest revisions to historic GDP come as the ONS completes a detailed probe of company accounts as well as compiling data from HM Revenues & Customs.

The ONS's main statistical bible - known as the "Blue Book" is published in July with the aim of having close to 100% data for previous years.

The household savings ratio has been revised lower for all years since 2004 except 2007, when it remained flat at 2.2%. Annual growth during this year was revised lower from 3% to 2.7%.