23 May 2009

UK economy still shrinking

5:14 am on 23 May 2009

Britain's economy shrank at its sharpest quarterly rate since 1979 in the first three months of the year, with household spending falling at its fastest rate since 1980.

The Office for National Statistics said on Friday that gross domestic product (GDP) fell 1.9% on the quarter - its biggest drop since the third quarter in 1979.

On the year, GDP fell 4.1%, while household spending fell 1.2% on the quarter. That was the biggest fall for both of these measures since the last quarter of 1980.

On the expenditure side, only government spending made a positive contribution to the economy.

Inventories fell by their biggest amount on record, contributing 0.6 percentage points to the quarterly decline in GDP.

The Bank of England, which has said there is a great deal of uncertainty around when a sustained recovery might occur, has lowered interest rates to a record low 0.5%.

Warning over credit rating

Ratings agency Standard & Poor's has warned that it may downgrade its credit ratings for Britain due to soaring public debt.

S&P said on Thursday it downgraded its outlook on the British economy to "negative" from "stable" because of the country's "deteriorating public finances."

The agency warned the change may eventually lead to S&P downgrading Britain's sovereign credit ratings.

S&P has maintained its sovereign credit ratings for Britain at 'AAA' long-term and 'A-1+' short-term in the meantime.

However, the agency warned that the ratings could be downgraded following Britain's next general election that must be held by mid-2010.

A spokesman for the British Treasury said the government was planning to halve the deficit within five years.

Official figures issued on Thursday showed Britain's public deficit rose to a record Stg 8.5 billion in April.