British economy posts biggest contraction in Q1 since 1958

The British economy contracted at a much sharper pace than initially thought and at its fastest rate in more than 50 years in the first three months of this year, official data showed yesterday.

The Office for National Statistics (ONS) said GDP fell by 2.4 per cent in the first quarter, revised down from a fall of 1.9 per cent.

That was the biggest quarterly rate of decline since the second quarter of 1958 and worse than analysts' predictions for a fall of 2.1 per cent.

On the year, GDP fell 4.9 per cent – the biggest decline on record. The ONS had previously estimated a fall of 4.1 per cent. Back data were also revised down, meaning Britain's recession started in the second quarter of 2008, earlier than thought.

Recent data have suggested that the economy may already be picking up. The Nationwide building society said yesterday house prices rose for the second month running in June.

But policymakers remain cautious about declaring victory over Britain's worst recession since at least the early 1980s and the GDP data may raise concern that the economy is even weaker than previously feared.

"To that extent I think it will keep the Monetary Policy Committee cautious about withdrawing stimulus from the economy," said Amit Kara, economist at UBS.

The Bank of England has cut interest rates to a record low of 0.5 per cent and embarked on an unprecedented £125 billion (Dh762bn) quantitative easing programme and most analysts expect monetary policy to remain ultra-low for a while.

The ONS said the extremely large revisions were a result of changes to the methodology of calculating construction and lower services output, which each contributed about half of the 0.5 percentage point downgrade.

"We knew about the construction revisions and the fall was not quite as big as the ONS had indicated," said Ross Walker, economist at RBS Financial Markets.

Separately, the ONS released data on the balance of payments. Britain's current account recorded a deficit of £8.540bn in the first quarter, a much bigger deficit than the £6.8bn forecast by analysts.

 

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