Britain’s Recession Worse Than Expected

GDP decline exceeds early forecasts

Britain’s recession is marginally worse than forecasted according to figures recently released. Gross domestic product (GDP) for the last quarter of 2008 was down 1.6% and not 1.5% as forecasted.

The sharp decline is being contributed to the building sector, which has all but collapsed making the recent figures the worse quarter on quarter performance since 1980.

Annually, the GDP dropped by 2%, above the 1.9% previously expected, marking the worst year-on-year fall since 1991, when Britain was last in a recession.

The declining demand for new houses has been something of a wrecking ball to the ailing building sector. It’s therefore no surprise that the sharpest decline over the last quarter of 2008 was in this sector.

To give a little more perspective on the extent of its problems, output in construction industry swooped by 4.9% during the final quarter of last year compared with an earlier estimate of 1.1%. Slowdown in manufacturing hit 4.5% in comparison with the 1.8% fall in the previous quarter.

Consumer expenditure was down 1% over the same period but government spending rose by 1.3% at the end of last year - 4.4% above the same period in 2007.

Britain has been in a recession officially since January when the Office for National Statistics revealed that GDP had contracted during two consecutive quarters - the technical definition of a recession.

The International Monetary Fund (IMF) extinguished hopes last week that the UK economy would see some recovery by Christmas this year, instead it predicted the recession would continue into 2010.

The IMF forecasts that GDP will fall by 3.8% this year, a great deal worse than the initial expectations of a 2.8% contraction. It went on to say that the GDP will shrink by a further 0.2% next year.

Spencer Dale, chief economist at the Bank of England took a different outlook yesterday, when he said that “economic conditions may start to improve later this year” when the “substantial” stimulus begins to take effect.

Howard Archer, chief UK and European economist at IHS Global Insight, warned that consumer spending will be under greater pressure from rising unemployment, currently at 2.03 million and expected to peak at 3.3 million by the end of 2010. As a result, income growth is expected to falter.