Economy plummeted 6.4% during recession

The UK economy's nosedive during the recession was even steeper than first feared, official figures showed today.

Output slumped 6.4% from its peak in the first three months of 2008 - bigger than the 6.2% slide previously estimated, revised data from the Office for National Statistics (ONS) showed.

The economy began its pull-out from the record slump in the final quarter of 2009 and grew by 0.3% in the opening three months of 2010 - in line with earlier estimates.

The figures showed production output rising 1% in the first quarter of 2010 - with manufacturing up 1.4%. Growth in the UK's powerhouse services sector was revised up to 0.3% but still well down on the previous quarter.

Hopes of a boost to the economy from a weaker pound boosting exports were dashed as exports fell 1.6% - the worst decline for a year - compared with a 4% rise in the final three months of 2009.

The squeeze on households from the impact of recession and the return of VAT to 17.5% in January was also shown in a 0.1% fall in consumer spending, although business investment rose 7.8% during the period.

The detailed figures showed the share of household income saved falling for the second quarter in a row to 6.9%.

Experts said the figures heightened the chances of a double-dip recession with the pressure on households set to increase when Chancellor George Osborne's emergency Budget measures - including a hike on VAT to 20% from next January - kick in.

Inflation lingering above 3% is likely to run ahead of wage growth this year, making households worse off in real terms, ING Bank's James Knightley said.

He warned: "With fiscal austerity set to intensify over the next few years as the Government tries to get a grip on the UK's budget deficit the savings rate may have to push close to zero if the economy is to avoid slipping back into recession."

Growth is likely to be stronger in the second quarter but could fall back again in the second half of 2010, IHS Global Insight's Howard Archer added.

"We suspect growth will be both bumpy and gradual over the coming months in the face of serious headwinds, including major fiscal tightening increasingly starting to impact, the problems in the Eurozone and serious constraints on consumers," he warned.