RTTNews - The British economy experienced the largest contraction since 1958 in the first quarter and the GDP decline was severe than initially estimated due to sharp declines witnessed in construction and services, official data showed Tuesday.
The economy shrank 2.4% in the first quarter from the fourth quarter of 2008, which was a steeper decline than last month's estimate of a 1.9% drop, the Office for National Statistics reported. In the fourth quarter of 2008, GDP was down 1.8%.
Annually, first quarter GDP declined 4.9%, revised down from a 4.1% drop published last month. This was the biggest drop on record.
Output by production industries slid 5.1% sequentially in the first quarter, within which manufacturing output slipped 5.5%. Mining and quarrying output was down 3.7% and that of electricity, gas and water supply fell 3.6%. Construction output decreased 6.9% over the previous quarter and output of services dipped 1.6%.
On the expenditure front, household spending decreased 1.3%, larger than the 1.1% drop in the prior quarter as consumption of household goods and services, restaurants and hotels, spending abroad and motor vehicles reported decreases. On the other hand, government final consumption expenditure grew 0.2%, much slower than the 1.1% growth in the fourth quarter. Gross fixed capital formation fell 7.5% and inventories level slid GBP 5.4 billion in the first quarter.
The GDP deflator at market prices dropped 0.6% and now stands 1% above the same quarter of 2008.
Commenting on the Q1 numbers, David Kern, Chief Economist at the British Chambers of Commerce said the economy is still facing serious pressures and it is important to persevere with aggressive quantitative easing. The lobby urged the government to urgently present a credible medium-term plan for restoring stability to public finances.
Earlier this month, the Confederation of British Industry estimated modest economic growth to resume during the first three months of 2010, with the growth rate gradually picking up next year. For 2010, the business group predicts a 0.1% growth in the first quarter and 0.3% in the second quarter.
The business lobby BCC reduced its GDP estimate for 2009 and warned that recovery is neither imminent nor guaranteed. The economy is now expected to shrink 3.8% this year and sees a very small growth of 0.6% for 2010.
In a separate communique, the statistical office said the current account deficit narrowed in the first quarter as a result of higher surplus on income together with a lower deficit on trade in goods. The deficit totaled GBP 8.5 billion in the first quarter, down from a deficit of GBP 8.8 billion in the previous quarter. The deficit for the first quarter was equivalent to minus 2.5% of GDP compared to minus 2.4% in the prior quarter.
At the same time, business investment dropped 7.6% sequentially and was 9.7% lower than the same period of last year. Declines in business investment occurred in most industries, with the quarterly fall in investment mainly due to reduced capital spending by industries classified as private sector manufacturing and private sector non-manufacturing.
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