Britain's GDP will decline at fastest pace since the 1940s

The UK economy looks set to contract at its fastest pace since the 1940s next year, according to a report by an independent group of economists.

The Centre for Economics and Business Research (CEBR) expects the UK’s gross domestic product to decline by 2.9 per cent in real terms over the next year, the biggest annual fall since 1946, when the country faced mass de-mobilisation after the Second World War. Business investment – forecast to collapse by more than 15 per cent in 2009 – is pegged to pose the biggest risk to the economy while household expenditure is expected to fall by 1.8 per cent in the New Year.

CEBR’s managing director, Mark Pragnell, said his team “had to get the history books to find a year with as a large a fall in national output as we expect for 2009.”

“The government’s statisticians publish a consistent series of gross domestic product estimates back only to 1948. The worst year on these records was 1980, where output was 2.1 per cent lower than the preceding year.”

The grim forecasts come less than a week after the Office for National Statistics said gross domestic product from July to September was down 0.6 per cent compared to the previous quarter. The contraction – the fastest rate of decline since the recessionary times of the early nineteen nineties – trumped earlier expectations of a 0.5 per cent drop.

“It is easy to see that things could be even worse,” CEBR economist Ben Read said,

“Despite the public declarations by the government that the banks ought to be lending more it is clear that the primary concern of many of our largest banks is to shore up their balance sheets and, for those on the end of the government bail-outs, to pay back their Treasury paymasters.”

“With few incentives for banks to behave otherwise, credit availability to businesses may become even worse during 2009.”