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Economy shrinks at fastest pace in 50 years

Text by NEWS WIRES

Latest update : 2009-06-30

Britain's Gross domestic product (GDP) has shrunk by 2.4 percent in the first three months of the year, its fastest contraction since 1958, though analysts say a return to mild growth could be round the corner.

AFP - Britain's recession-battered economy shrank at its fastest pace in more than 50 years in the first quarter of 2009 in the worst global slowdown in decades, revised official data showed on Tuesday.

Gross domestic product (GDP) contracted 2.4 percent in the first three months of the year from the final quarter of 2008, said the Office for National Statistics, but analysts predicted a brighter future for the British economy.

"GDP in real terms fell by 2.4 percent compared with the previous quarter, revised down from last month's estimate of 1.9 percent. This is the largest decrease since the second quarter of 1958," the ONS said in a statement.

"Around half the revision ... is a result of new construction output data, while the remainder reflects more complete data for services," it added.

On a year-on-year basis, Britain's economy declined by 4.9 percent in the first quarter, the largest contraction since records began in 1948, and compared to the statistic office's earlier estimate of minus 4.1 percent.

Neighbouring Ireland's economy meanwhile shrank by 8.5 percent in the first quarter of 2009 compared to the same period in 2008, as the eurozone member was hammered by the financial crisis, separate official data showed Tuesday.

The former "Celtic Tiger" economy has been savaged by the global financial crisis and the collapse of a domestic property bubble. Last September it became the first eurozone member to fall into recession in the current downturn.

Like Britain, Ireland is also suffering from soaring unemployment.

Looking ahead, chief Britain economist at IHS Global Insight, Howard Archer, said on Tuesday: "Even deeper contraction in (British) GDP in the first quarter is obviously unwelcome news, but it is also old news and matters have moved on appreciably since then.

"The good news is that the economy probably at worst contracted only modestly in the second quarter and it is not inconceivable that it managed to eke out marginal growth."

The ONS on Tuesday added that GDP had stood at minus 0.1 percent in the second quarter of 2008 rather than showing flat growth, meaning Britain's current recession began earlier than expected.

However fresh signs of better times ahead for the British economy also appeared on Tuesday as home-loans provider Nationwide said British house prices had increased by 0.9 percent in June from May.

"House prices have now risen in three of the last four months, suggesting that the improvement that began to show up in March represents more than just statistical noise," Nationwide's chief economist Martin Gahbauer said in a statement.

Economists' consensus forecast had been for a 0.5 percent drop in house prices in June compared to May.

"On balance, the stabilisation of house prices is a welcome surprise that did not seem likely at the beginning of the year," said Gahbauer.

"However, there are still considerable headwinds facing the demand side and until we see a more robust recovery in house purchase activity, it is too early to be confident about a full-scale recovery of prices," he added.
 

Date created : 2009-06-30

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