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Business

UK officially in recession for first time since 1991

Latest update : 2009-01-23

The UK officially was in recession in the second half of 2008, according to figures from the Office for National Statistics released on Friday. British GDP shrank by 1.5% in the fourth quarter compared to the third, when it contracted by 0.6%.

AFP - Britain is in recession for the first time since 1991 after its economy shrank during the final two quarters of last year as a global financial crisis raged, official data showed on Friday.

The Office for National Statistics (ONS) said that gross domestic product (GDP) had shrunk by 1.5% in the fourth quarter of 2008 compared with the previous three-month period, when it contracted by 0.6%.

The generally-used technical definition of a recession is two quarters running of negative economic growth.

The figure for the final quarter of 2008 showed the biggest fall in GDP since 1980.

Prime Minister Gordon Brown said before the announcement Friday he was using "every weapon at our disposal" to fight the economic crisis.

Brown stressed international co-operation was vital to tackle the financial crisis, describing the current circumstances as "completely different" to previous British recessions.

The British economy grew by 0.7% in 2008, the slowest annual rate since 1992, the ONS said on Friday.

Britain joins the United States, the eurozone and Japan in recession as the global economy struggles to recover from the credit crisis fallout.

Germany on Wednesday said it would suffer its worst recession since World War II this year, with half a million more people in Europe's biggest economy expected to lose their jobs.

In Britain, the unemployment rate has jumped to a decade-high 6.1% with nearly two million out of work, according to official figures published this week.

At the same time, the ONS said Britain's public finances worsened last month to show a record deficit of 44.2 billion pounds (48 billion euros, 61 billion dollars) after the state bailout of Royal Bank of Scotland.

In a bid to stave off a deep recession, the Bank of England (BoE) has slashed British interest rates to an all-time low of 1.5%.

However tumbling borrowing costs have deterred foreign investment, severely hurting the British pound, which this week struck an all-time low against the yen and has reached multi-year troughs versus the dollar. Sterling also recently fell to near-parity against the euro.

BoE policymakers earlier this month voted 8-1 to cut interest rates by half a percentage point to the lowest level since the central bank's formation in 1694, according to minutes of their last meeting released on Wednesday.

One policymaker, David Blanchflower, voted in favour of cutting rates by 100 basis points, arguing that it was "becoming increasingly probable that there would be a deep and prolonged recession."

The BoE's main task is to keep inflation at a government-set target of 2.0%.

British 12-month inflation dived in December owing to a tax cut on goods and services, falling energy prices and heavy pre-Christmas discounting, official data showed Tuesday.

The Consumer Prices Index (CPI) annual inflation rate sank to 3.1% in December, the lowest level since April 2008, from 4.1% in November.

The BoE is meanwhile considering increasing money supply to ensure growth at all costs does not slow so much that inflation falls below target.

BoE governor Mervyn King told businessmen late Tuesday that the bank was considering the "unconventional measures" that the government placed at its disposal as part of a new rescue package for banks unveiled this week.

King stressed the priority was to get banks lending again to help cash-starved businesses and individuals, and said new measures announced this week would help.

The government on Monday unveiled a second multi-billion-pound bank rescue package aimed at kick-starting its stalled economy but financial shares plummeted amid growing fears of deepening recession.

Press reports suggest the latest bailout -- which may boost an ailing housing market -- is worth some 200 billion pounds.

The news came as Royal Bank of Scotland on Monday forecast an annual loss of up to 28 billion pounds -- a record in British corporate history -- owing to the credit crisis and its part in a costly takeover of Dutch lender ABN Amro in 2007.

Date created : 2009-01-23

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