UK in recession after fastest GDP fall since 1980

LONDON - Britain went into recession at the end of last year for the first time since 1991, with the economy contracting at its fastest pace in nearly 30 years.

By (Reuters)

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Published: Sun 25 Jan 2009, 1:11 AM

Last updated: Sun 5 Apr 2015, 10:25 PM

The Office for National Statistics said the economy shrank by 1.5 percent in the fourth quarter of last year, the biggest drop since the deep recession of 1980. The economy contracted by 1.8 percent compared with a year ago.

The pound hit a fresh 23-year low against the dollar and the FTSE-100 share index fell below the psychologically-important 4,000 mark for the first time in more than a month as investors realised the UK economy was in for a deep and prolonged downturn.

“This report confirms that the economy is in deep recession and adds to the case for further aggressive Bank of England policy easing,” said Nick Kounis, economist at Fortis.

The central bank has slashed borrowing costs by 350 basis points since October to shore up the economy against a global economic downturn. Economists expect it will cut interest rates again next month from the current 1.5 percent.

“The economy entered recession with an almighty bang in the fourth quarter of 2008,” said Howard Archer of Global Insight.

“Our current forecast is for UK GDP to contract by 2.9 percent in 2009, with declines in output occurring through all four quarters. This would be the sharpest contraction since the Second World War,” he added.

The ONS said the decline was driven by a sharp contraction in both services and production activity.

The services sector, which accounts for three-quarters of economic output shrank by 1.0 percent in the fourth quarter, the fastest pace since 1979.

Manufacturing output fell by 4.6 percent in the fourth quarter. The broader measure of production, which includes power generation, fell by 3.9 percent in the quarter, the biggest fall since 1980.

Speaking before the release of the figures, Prime Minister Gordon Brown said Britain’s economic growth depends on how closely countries around the world work together in response to the global financial crisis.

“It depends all the time on what is the level of international cooperation,” Brown said.

The prime minister dismissed comments from opposition Conservative leader David Cameron that Britain was “running the risk” of being forced to go to the International Monetary Fund (IMF) to prop up its economy.

Brown described the comments as “irresponsible behaviour” on the part of opposition politicians.

Separately the ONS published retail sales data for December.

However, it did not publish much of the usual seasonally-adjusted data for the month. It said exceptional circumstances, such as a cut in value-added tax, heavy discounting by retailers and a 5-week statistical period had skewed the data.

Still, it said that on a rough estimate, seasonally adjusted sales volumes rose by 1.6 percent in December, taking the annual increase to 4.0 percent.

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