Economic Report: British economy sees steepest fall in 20 years
First-quarter gross domestic product contracted 1.9% compared to the fourth quarter of 2008, the Office for National Statistics reported Friday in its first estimate of the economy’s quarterly performance. That’s the steepest fall since the third quarter of 1979.
Compared to the first quarter of 2008, GDP dropped 4.1%, for the biggest annual drop since 1980.
Economists were looking for a quarterly contraction of 1.4% and a year-on-year fall of 3.7%, according to a survey conducted last week by Dow Jones Newswires. The economy saw a quarterly contraction of 1.6% and an annual fall of 2% in the final quarter of 2008.
The first-quarter plunge was driven by a 1.2% quarterly contraction in the services sector, which dominates the U.K. economy. Production industries and construction also saw declines, the ONS said.
British consumers increased spending in March despite the deepening recession, according to the ONS. The agency said seasonally-adjusted retail sales rose 0.3% in March after falling by a downwardly-revised 2% in February. Compared to March 2008, sales were up 1.5% compared to a 0.4% annual increase in February.
The British pound slipped to a new low for the day versus the U.S. dollar to trade at $1.4628. The broadly stronger euro was up 1.4% to trade at 90.54 pence. The FTSE 100 index was unfazed, gaining 1.3%.
Meanwhile, worries continue to mount over Britain’s long-term fiscal outlook. The government’s annual budget, delivered by Chancellor of the Exchequer Alistair Darling on Wednesday, said government borrowing would surge from a record 90 billion pounds in the just-completed fiscal year to 175 million pounds, or 12.4% of GDP, in the current year.
Darling announced plans to boost taxes on the wealthy and cut spending in coming years, saying the deficit would be halved within five years. Bur economists said the goal relies on overly optimistic growth projections for 2010 and beyond.
British government bonds, or gilts, have fallen sharply this week on worries about mounting debt issuance and concerns the British government’s AAA credit rating could come under threat, strategists said.
The price of the 10-year gilt fell an additional 30 basis points on Friday to around 107.86. The yield, which moves inversely to price, rose by around 3 basis points to 3.54%.
Economic Report: British economy sees steepest fall in 20 years
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