Report: U.K. economy shrank 2.4 pct in 1st quarter
LONDON — The crisis-stricken British economy shrank by a revised 2.4 percent in the first quarter, even more than the previous estimate of a 1.9 percent decline and the worst drop in a half century, the government said Tuesday.
The new figure was the worst since the economy contracted by 2.6 percent in the second quarter of 1958, and was slightly larger than the 2.36 percent fall recorded in the third quarter of 1979, the agency said.
Britain has been hard hit by the financial and economic crises, with its banks suffering heavy losses, house prices collapsing and unemployment rising. Still, some think the worst declines in growth may now be past.
Government minister Liam Byrne, the chief secretary to the Treasury, said the revision had not changed the government’s view that the economy will return to growth by the end of the year.
“There have been some tentative signs that the fall in output is moderating and I remain confident but cautious about the prospects for the economy,” said Byrne, the chief secretary to the Treasury.
The downward revision “clearly leaves an extremely weak platform for growth this year,” said Jonathan Loynes, chief European economist at Capital Economics.
Economic output is now 4.9 percent below the first quarter of 2008, the Office for National Statistics said.
Howard Archer, chief European economist at Global Insight, said the downward revision was shocking, but “old news.”
“The good news is that the economy probably at worst contracted only modestly in the second quarter and it is not inconceivable that it managed to eke out marginal growth,” Archer said.
He said it’s likely that GDP will fall by 4 percent this year, rather than his previous estimate of 3.5 percent.
In the first quarter, the Office for National Statistics said, manufacturing output fell 5.5 percent from the previous quarter, construction fell 6.9 percent and the services sector fell 1.6 percent.
Household consumption expenditure fell by 1.3 percent, dropping 3.1 percent below the first quarter of 2008.
Some sign of recovery came Tuesday as the Nationwide Building Society said that average house prices rose 0.9 percent in June. It was the third rise in four months reported by Nationwide, the nation’s third-largest mortgage lender.
But the average price of 156,442 pounds ($259,000) was 9.3 percent lower than a year earlier.
“The three-month on three-month rate of change — a smoother indicator of the short-term price trend — turned positive for the first time since December 2007 to stand at 0.9 percent, up from minus 0.4 percent in May,” Nationwide’s chief economist Martin Gahbauer said.
Seema Shah, property analyst at Capital Economics, was skeptical that house prices were on a sustained upward trend.
“House prices are still overvalued, the recovery in activity appears to be wavering, unemployment is set to rise further and credit conditions remain tight,” Shah said.
On the Net: www.statistics.gov.uk/pdfdir/qna0609.pdf
(This version CORRECTS Corrects that drop is biggest since 1958)
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