London: Britain’s economy shrank at its sharpest quarterly rate since 1979 in the first three months of the year, official data confirmed on Friday, with household spending falling at its fastest rate since 1980.
The Office for National Statistics’ second estimate of economic activity showed GDP fell 1.9% on the quarter, its biggest drop since Q3 1979. That was unrevised from the previous reading and in line with analysts’ forecasts.
On the year, GDP fell 4.1% - the biggest fall since the last quarter of 1980.
Household spending fell 1.2% on the quarter, also the biggest drop since Q4 1980. On the expenditure side, only government spending made a positive contribution to the economy.
“There was a significant fall in consumer spending in the first quarter,” said Mark Miller, an economist at Bank of Scotland. “The most important thing going forward is how households and firms adjust their balance sheets.”
There was little market reaction to the figures, which underline the broad weakness of the economy at the start of this year and the challenge facing policymakers to kick start growth.
Inventories fell by their biggest amount on record, contributing 0.6 percentage points to the quarterly decline in GDP.
“From here on the slower pace of destocking will help output in the coming quarters,” said Philip Shaw, an economist at Investec. “We remain hopeful that GDP will be able to rise again later this year, probably in the third quarter.”
The Bank of England, which has said there is a great deal of uncertainty around when a sustained recovery might occur, has slashed interest rates to a record low 0.5%.
It is also buying assets in an unprecedented £125 billion quantitative easing programme in a bid to get lending flowing through the economy again.
The ONS data also showed employees’ pay falling 1.1% on the quarter - the largest decrease on record.