THE UK economy contracted by 1.9 per cent in the first three months of 2009 – the fastest rate in 30 years – as the country sank further into recession.
The dramatic fall in GDP – the total value of all goods and services produced by a country – is far worse than the 1.6 per cent contraction predicted in the Budget. The dire figures, from the Office for National Statistics, cast further doubt on Cha
ncellor Alistair Darling's forecast that the economy would return to growth next year.
Economists had predicted that the contraction would be 1.5 per cent, but the quarterly result raised fears that the stimulus measures introduced by the government and the Bank of England had failed. There was just one positive economic indicator yesterday: retail sales recovered from a sharp fall in February to rise by 0.3 per cent last month.
However, the overall bleak state of the economy was underlined by dire data from the car industry showing that production had more than halved in just a month. The Society of Motor Manufacturers and Traders (SMMT) called for more help for the industry. The beleaguered service sector, which accounts for about three-quarters of UK output, also suffered, with a 1.2 per cent decline.
But the biggest contributor to the slump was the manufacturing sector, which fell by 6.2 per cent in the first three months of the year, after a decrease of 4.9 per cent at the end of last year.
Business services, including accounting and legal services, slumped 1.8 per cent, the largest fall since records began in 1983.
Total production – including manufacturing, mining and electricity, gas and water supply – declined by 5.5 per cent, the biggest fall since 1974.
The latest decline means that Britain's economy has shrunk for three consecutive quarters and there are very few indications that things will improve in the near future. Compared with a year ago, Britain's GDP was 4.1 per cent lower in the first quarter.
Economists and politicians pounced on the data as evidence the Chancellor's Budget prediction on Wednesday that the economy would bounce out of its decline was wrong.
Benjamin Williamson, an economist at the Centre for Economics and Business Research, said the group expected a 4.5 per cent fall over the full year.
"A contraction of only 3.5 per cent this year as outlined in the Budget on Wednesday seems now to be wishful thinking from the Chancellor," he said.
Shadow chancellor George Osborne said: "Just two days ago, the Chancellor said his figures for this quarter would be similar to the last quarter – in fact, they are worse.
"This Budget has unravelled quicker than any in living memory as we discover a secret tax bombshell, hidden spending cuts and fantasy forecasts on which the government's whole plan for recovery is based."
Vince Cable, the Liberal Democrats' Treasury spokesman, said: "Darling's optimism over the economy is completely at odds with reality.
"These figures represent collapsing consumer confidence and people losing their jobs.
"With collapsing growth and a burgeoning deficit, it is more necessary than ever to have an open, honest debate about what the government won't be able to afford to do in the future."
But Yvette Cooper, Chief Secretary to the Treasury, said the government stood by its forecasts, telling the BBC: "We believe the economy will start to recover towards the end of this year."
And speaking at the Welsh Labour conference in Swansea last night,
Prime Minister Gordon Brown said: "I don't like raising taxes. You don't tax for its own sake, only for meeting the needs of our country.
"People on modest incomes would be protected from the tax changes. But to equip ourselves for the future costs money. That's why it's right those who have done best over recent years, those earning over £150,000, pay a bigger contribution."
UK car production fell 51.3 per cent in just four weeks, with 61,829 cars produced in March. Of these, 46,458 were for export, down 52.6 per cent on the year, and 15,371 for the domestic market, a fall of more than 47.2 per cent. The figures show that despite the weakness of sterling, demand for British goods abroad has been offset by global economic collapse.
It is hoped that measures in the Budget, including a scheme under which owners of cars more than ten years old could apply for a £2,000 discount on a new car, will help lift demand.
The SMMT said the scrappage bonus would help, but the sector would take time to recover and it called for further short-term measures. Chief executive Paul Everitt said: "The figures show urgent action is necessary to kick-start demand.
"The introduction of a UK scrappage incentive scheme is an important first step. Efforts to restore confidence and improve access to finance, particularly for companies in the supply chain, are key to sustaining our industrial capability."
• Finance chiefs from the G7 powers last night said the downturn in their economies was easing, and pledged to make certain big financial firms are sound.
G7 finance ministers and central bankers said economic activity should begin to recover this year, although the outlook remained weak and there was a risk the global economy may worsen.
"We are right to be somewhat encouraged, but we would be wrong to conclude we are close to emerging from the darkness that descended on the global economy early last fall," US Treasury Secretary Timothy Geithner said in a statement.
Bankruptcy figures soar as rule change makes this an easier optionTHE number of Scots declared bankrupt in the first three months of this year was a record high for the quarter, according to new figures.
And experts have warned that the number of Scots going bust would continue to rise, driven by a combination of soaring personal debt levels and tighter restrictions on credit.
There were 5,693 insolvencies in the three months to the end of March, an increase of 71 per cent on the same period in 2008 and the third highest figure for any quarter on record, said accountant and business adviser PKF, which analysed new government insolvency figures.
The total included 3,722 sequestrations (the Scottish term for formal bankruptcy) and 1,971 protected trust deeds, which are effectively voluntary bankruptcies.
The spike in sequestrations – up 158 per cent compared with the first quarter of last year – was attributed to the introduction in April 2008 of the Low Income, Low Asset rules that made it easier for struggling Scots to apply for their own bankruptcy. The rules accounted for 2,284 of the sequestrations carried out in the first three months of this year.
PKF corporate recovery partner Bryan Jackson said the initial flow of Scots taking advantage of the new rules had continued unabated.
"What this tells us is that the underlying debt levels remain extremely high for many Scots and those financial problems, which will have been apparent for some years for many individuals, are now beginning to become uncontrollable, leading to a large number making themselves insolvent."
The number of people taking out protected trust deeds in the first quarter was up 5 per cent on the previous three months, a trend that is likely to gain momentum, according to Ian Wright, managing director of newtomorrow.com, a Scottish debt solution specialist.
He said: "The world changed so quickly last year that people whose finances were already stretched rapidly found themselves in an untenable position, perhaps made worse by unexpected redundancy and or reduction in the household income."
Eileen Maclean, the Scottish council member for insolvency trade body R3, suggested the rise in insolvencies may have peaked.
But she added that many people struggling with debt were reluctant to seek help.
Just 37 per cent of those who had fallen behind on bills or credit repayments sought advice in the six months before February, according to the latest quarterly YouGov DebtTracker survey.
Conservatives lay out their plans to get country out of recessionA CONSERVATIVE government would introduce dramatic cuts in public spending in order to tackle the country's debt problem, David Cameron has said.
The Tory leader signalled he would reward ministers for saving rather than spending money and abolish tax credits for those earning more than £50,000.
His remarks came after economists warned that the burden of public debt would not be reined in for 23 years.
Mr Cameron said the latest doom-laden figures on the state of the British economy had vindicated his earlier arguments against the VAT cut, which had failed to stimulate the economy.
"We're going to have to get more for less," he said. "We're going to have to stop focusing endlessly on the inputs – how much 'investment' the government is putting in – and start asking much more what we're getting out."
He added that when he had warned that the country could not afford the VAT cut, "we were completely alone". Mr Cameron continued: "I said 'we can't afford it'; I said 'this debt is going to be the number-one problem in British politics'. Now we have been, I think, tragically proved right."
The way government operates has to change, he said. "It means no more ministers endlessly announcing new, catchy initiatives with budgets attached to them. It means, actually, ministers being rewarded on the basis of how they can save money rather than spend money."
Mr Cameron said that Alistair Darling's forecasts for growth had been "rubbish", adding that the Chancellor's Budget had been "thoroughly dishonest".
"The public aren't stupid and won't fall for it," he said.
The figures in the Budget showed that public debt was set to reach £1.4 trillion by 2013-14.
JOBS AT RISK
ABOUT 1,000 jobs are at risk after the owner of struggling fashion chain Bay Trading said it was placing the business into administration.
Parent group Alexon has applied to appoint Deloitte as administrators at the 268-strong chain after insurers withdrew trade credit cover this week.
It said Euler Hermes pulled trade credit insurance – used to cover firms against the risk that they would not be paid for goods supplied – after results showed a "material uncertainty" over the future of Bay Trading.
Administrators hope to continue trading Bay Trading – part of the Epcoscan subsidiary that is run separately from Alexon – until a buyer can be found. Alexon, which includes brands such as Ann Harvey, Minuet and Kaliko, stressed that the rest of the business was still profitable and not going into administration.
Luton-based Alexon had hoped to revive Bay Trading's fortunes with a revamp, a new design team and fresh product lines. But it warned in full-year results this week that it might need to radically restructure the loss-making arm so that it remains within banking facilities if performance failed to improve.
The removal of trade credit cover came as a final blow and Alexon said the business was too much of a "financial drain" to continue supporting.
