British economy set for worst spell since 1931

The industrial downturn is accelerating and the British economy is on course for its worst year since 1931, the latest official figures suggest.

The Office for National Statistics reported that manufacturing output fell by 6.4 per cent in the three months to January - an even faster rate of decline than the 4.9 per cent contraction seen in the quarter to December.

The motor industry was one of the hardest-hit sectors - output falling by 10.6 per cent during the quarter. Overall, the annual rate of decline in output has reached an alarming 12 per cent.

Analysts were shocked by the figures, as they point to a GDP decline in the early part of this year that may prove even steeper than that seen during the last few months of 2008, when GDP shrank by 1.5 per cent. Research firm Capital Economics said that the trends could point to GDP contracting over 2009 by "4 per cent or so".

Such a result would rank as the country's worst year for economic growth since 1931 - which saw a fall in excess of 5 per cent, the collapse of a Labour government and ushered in a miserable decade of mass unemployment and hunger.

David Kern, the chief economist at the British Chambers of Commerce (BCC), said of manufacturing: "The sector has so far failed to benefit from the sharp falls in sterling. The critical priority is to ensure that the vital skills base is not lost during this recession."

The National Institute for Economic and Social Research, which enjoys an enviable record for accurate forecasting, warned that the economy's decline is gathering pace.

In its estimate, output fell by 1.8 per cent in the three months ending in February, after a fall of 1.7 per cent in the three months ending in January. The NIESR says that the level of economic activity has now fallen back to the August 2006 levels and is 4.3 per cent below its peak of April 2008. More job losses were announced yesterday.

The design and engineering consultancy Scott Wilson confirmed up to 350 UK job cuts and announced a salary freeze for the remaining staff. Meanwhile, hundreds of jobs were in jeopardy at Wrekin, a Midlands construction group which employs 600. It has gone into administration.

Only a few months ago there was widespread belief that the worst of the downturn could be limited to the financial sector, and that manufacturing in particular would benefit from the slide in the value of sterling.

Yet the ONS data shows that industry is failing to respond to that and the various stimuli applied by the authorities in recent months.

- INDEPENDENT