Output falls at its fastest rate for 51 years

Jul 1 2009 by Iain Laing, The Journal

THE UK economy recorded its sharpest decline in more than 50 years during the first quarter of 2009. 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.

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.

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 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 £5.5bn between January and March – suggesting that firms will soon step up production and generate growth.

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.