Slump knocks UK economy back 1.5%
April 9, 2009
By Brian Swint
Recession is similar to 1979 downturn, says research group
Consumer confidence at a four-year low
The UK economy shrank 1.5 percent in the first quarter as the recession increasingly resembled the one that started in 1979 when Margaret Thatcher took power, the National Institute of Economic and Social Research (Niesr) said yesterday.
The drop in gross domestic product (GDP) followed a 1.6 percent decline in the last three months of last year, said Niesr, whose clients include the UK Treasury.
Separately, Nationwide Building Society said that consumer confidence last month matched the lowest level in at least four years.
While there are some signs that the economy's deterioration is slowing, unemployment is rising at the fastest pace in three decades, pushing Prime Minister Gordon Brown to redouble his efforts before the next election.
The Bank of England will probably keep the benchmark interest rate unchanged at a three-century low of 0.5 percent in its monthly decision today.
"The output fall so far is very similar to that of the recession that began in … 1979," Niesr said. "If the 1980s profile were followed, output would continue to decline for up to another year and it would take two further years before the level of output enjoyed at the start of 2008 would be reached again."
Niesr still said there was no "obvious reason" for the recession to follow the course of the one in the early 1980s.
The group bases its estimates on official statistics for industrial production and other indicators for services.
It says the estimates of GDP have a standard error of between 0.1 and 0.2 percentage point compared with the statistics office's first release.
Thatcher succeeded James Callaghan as UK prime minister in May 1979, following the so-called Winter of Discontent, when car workers, truck drivers and trash collectors went on strike.
Unemployment jumped the most since 1971 in February, the government's statistics office reported last month. Royal Bank of Scotland Group said on Tuesday that it would cut up to 4 500 back-office jobs in Britain to save money.
"Feelings about the current labour market have weakened," said Nationwide chief economist Fionnuala Early. "Further reports of job losses are likely to have affected consumers' views of this."
Nationwide's index of consumer confidence slipped to 41 points last month, matching January's four-year low, from 43 in February. Two-thirds of Britons said there were few jobs available, the mortgage lender's survey showed.
The number of permanent staff appointments by job consultants fell further in March, KPMG and the Recruitment and Employment Federation said in a separate report.
"The availability of permanent and temporary jobs in the UK continues to decline, salaries are being reduced and the pool of available candidates is rising further," said Mike Stevens, a partner at KPMG.
"Recovery might take longer and be more protracted than many hope."
A gauge of services industries rose to a six-month high in March, a report showed last week. Nationwide reported that house prices had risen for the first time in more than a year and the Bank of England said credit conditions were easing, suggesting the recession's grip on the country might be loosening.
Chancellor of the Exchequer Alistair Darling presents his next budget on April 22.
Brown, whose governing Labour Party trailed the opposition by 13 percentage points in a poll on Monday, must call an election by mid-2010.
Last month Bank of England governor Mervyn King took the unprecedented step of cutting rates close to zero and buying government bonds with newly created money to stimulate the economy. All except two of 62 economists in a Bloomberg survey predict policy makers will keep the key rate unchanged at 0.5 percent today. - Bloomberg
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