U.K. First-Quarter GDP Drops 2.4%, Most Since 1958 (Update2)
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By Svenja O’Donnell
June 30 (Bloomberg) -- The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.
Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.
Bank of England Governor Mervyn King said last week that Britain’s recovery from recession may turn out to be “a long, hard slog.” While business surveys have indicated the economic slump is easing, unemployment may continue to increase and net mortgage lending is the weakest since records began in 1993.
“In big picture terms, it doesn’t really change the outlook,” said Nick Kounis, an economist at Fortis Bank Nederland Holding NV in Amsterdam and a former U.K. Treasury official. “The recovery is unlikely to be very strong any time soon. There’s more bad news for consumers ahead.”
The pound fell as much as 0.3 percent against the dollar after the release. The U.K. currency traded at $1.6599 as of 11:01 a.m. in London.
The quarterly drop was the biggest since the year that Michael Jackson was born. In 1957, Prime Minister Harold Macmillan told a Conservative Party rally that “most of our people have never had it so good,” at a time when the economy was in and out of recession, ending in a 2.6 percent slump in the second quarter of 1958.
This year’s first-quarter contraction matched the 2.4 percent drop in the third quarter of 1979 after rounding, though it exceeded it by 0.04 percentage point, the statistics office said. On the year, GDP dropped 4.9 percent, the most on record.
Construction slumped by 6.9 percent on the quarter, revised down from a drop of 2.4 percent published in May. The services decline was 1.6 percent, revised from a 1.2 percent drop.
Rising unemployment will probably keep a lid on consumer spending in coming months. U.K. financial services companies may cut 13,000 jobs in the third quarter even as they express rising optimism for the first time in two years, the Confederation of British Industry said in a report yesterday.
Job Cuts
London Stock Exchange Group Plc said the same day it plans to cut 120 staff, more than a tenth of the workforce. Corus, the U.K. unit of Tata Steel Ltd. which provides more than two thirds of the company’s output, said on June 25 that more than 2,000 jobs are ‘are risk.”
The Bank of England is pumping newly created money into the financial system and keeping its benchmark interest rate at a record low of 0.5 percent to fight the recession.
Still, King said June 24 that problems in the banking system mean the recovery is “uncertain” and policy maker Kate Barker said the same day that Britain’s housing market was “still some way away from normal.
While Nationwide Building Society said today house prices increased 0.9 percent in June, adding to evidence the housing market may be stabilizing, mortgage approvals climbed less than economists forecast last month.
To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.
Last Updated: June 30, 2009 06:10 EDT
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But , but , but, but, I though consumer confidence is up???
