UK in recession as economy slides
The UK is now in recession for the first time since 1991, official government figures have confirmed.
Gross domestic product fell by 1.5% in the last three months of 2008 after a 0.6% drop in the previous quarter.
That means that the widely accepted definition of a recession - two consecutive quarters of falling economic growth - has been met.
It represents the biggest quarter-on-quarter decline since 1980, and a 1.8% fall on the same quarter a year ago.
The worse-than-expected contraction sent sterling to a 24-year low against the dollar, with one pound buying $1.355.
Meanwhile the FTSE 100 index fell almost 2%, below 4,000 points.
‘Broad-based decline’
The figures, from the Office for National Statistics (ONS), showed that manufacturing made the largest contribution to the slowdown, contracting by 4.6% despite hopes that the weak pound would help exporters.
With the exception of agriculture, all elements of the economy shrank from the previous three months, the ONS added.
The fall in GDP was slightly steeper than most analysts had been expecting, said the BBC’s economics editor Stephanie Flanders
“These figures suggest that it’s not going to be done by Christmas,” she said.
The downturn was “broad-based” our economics editor added, saying that the bleak manufacturing data ended “any prospect of this being a white-collar recession that would largely escape manufacturers “.
‘Sad commentary’
Chancellor Alistair Darling said that the figures underlined the scale of the challenges the government faced.
“It’s going to be a difficult year for families in the UK. We need to go about the problem with a sense of purpose,” he said.
Countries across the globe were facing recession, he added, saying that the crisis could be solved “better and quicker” if other governments also acted to stimulate their economies.
Shadow chancellor George Osbourne said the UK faced “the worst recession for a generation”.
“The forecasts that we were given by the chancellor and the prime minister just a few weeks ago now look very, very optimistic - and that’s putting a nice word on it.”
And Liberal Democrat treasury spokesman Vince Cable said the situation was “very serious”.
“It’s a sad commentary on a decade of Labour government that they have succeeded in producing an almost exact replica of the boom-bust cycle we had under the Conservatives.”
‘Grim’
What started as a crisis in the financial sector continues to infect the wider economy.
Unemployment is accelerating sharply, with 1.92 million people now out of work, the housing market remains severely depressed and retail sales are weak.
Even though December’s retail figures were better than expected, growing by 1.6%, this was driven by heavy price-discounting and should be treated “with caution” the ONS said.
Deteriorating picture
GDP is the most commonly used indicator of national income.
It attempts to measure the sum of incomes received by the various wealth-creating sectors of the economy, from manufacturing and retail to agriculture and service industries.
The consensus forecast for 2009 as a whole is now for a 2.1% decline in GDP.
As recently as December, the forecast was for a drop of 1.5%.
This highlights the rapidly deteriorating economic picture over recent weeks, during which a number of the UK’s best known high street retailers, such as Woolworths and Zavvi, have gone into administration.
(Source: BBC 23/01/2009)