Economy suffers steepest fall in 50 years

The UK economy recorded its sharpest decline in more than 50 years during the first quarter of 2009, figures showed today.

And revisions to figures revealed the current recession began earlier than first thought, with a 0.1 per cent decline seen between April and June last year compared with previous estimates of zero growth.

Output fell 2.4 per cent 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 per cent - the biggest fall since ONS records began in 1948.

The first-quarter decline of 2.4 per cent is much worse than the 1.9 per cent 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 per cent fall suffered during the whole of the recession in the 1990s, Investec's David Page said.

He warned: "The economy is now likely to undergo a peak to trough adjustment in excess of 5 per cent, nearly as big as the overall 5.9 per cent collapse seen from 1979-1981."

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.

Shadow Chancellor George Osborne said: "We hope the recovery comes as soon as possible but sadly we now know this recession has been longer and deeper than we had thought."

Liberal Democrat Treasury spokesman Vince Cable warned: "Such a dramatic collapse in growth can only make the public finances worse.

"Rather than making promises on public spending that nobody believes, the Government must start taking tough choices on whether it is going to cut spending or raise taxes to bring the economy out of the red."

The squeeze on consumers in the current climate was underlined by a 1.3 per cent 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 per cent during the quarter, while savings levels were also revised down.

The ONS said employee compensation fell 1.4 per cent 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 per cent below the same period a year earlier, it added.

But the figures also 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 £5.5 billion between January and March - suggesting that firms will soon step up production and generate growth, even at muted levels.

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.

Royal Bank of Scotland economist Ross Walker said: "Although to some extent this is 'old news', it does serve to emphasise the size of the hole out of which the UK must climb.

"The survey data suggest we have at least stopped digging, but the economy remains on course for a lacklustre pace of recovery."