Recession deeper than expected

Construction site

New figures show that the recession is deeper than previously thought, with the economy shrinking by 1.9% in the first three months of this year – the largest fall since 1979.

Analysts had expected a fall of 1.5%. The quarter's fall is the largest in UK since summer 1979 and the third successive quarter of negative growth - confirming the economy is fully entrenched in recession.

Vicky Redwood, UK economist at Capital Economics, says the larger-than-expected contraction pours cold water on Alistair Darling’s Budget forecast for economic recovery this year.

“It’s early days yet, but the drop opens up the possibility of the economy in 2009 as a whole falling by even more than the 4% we currently expect,” she says.

The government’s official forecast is for a 3.5% contraction in 2009. But Benjamin Williamson, economist at the Centre for Economic Business Research, says the 1.9% fall in the first three months of 2009 alone contradicts the view that the worst of the recession was at the end of 2008.

“A contraction of only 3.5% this year as outlined in the Budget seems now to be wishful thinking from the chancellor,” he adds. “Our latest forecast is for a 4.5% contraction this year making 2009 the steepest single year contraction in economic activity since the 5.1% fall in 1931.”

Meanwhile, other official data show that new car production plunged more than 50% year-on-year in March, highlighting the gloom surrounding the automotive sector.

Figures from the Society of Motor Manufacturers and Traders (SMMT) showed a 51.3% drop in production, which was a slight improvement from the record 59% fall seen in February.

The recession has led to many manufacturers suspending or cutting production as demand plummets.