LONDON (Reuters) - The economy contracted at a much sharper pace than initially thought and at its fastest rate in more than 50 years in the first three months of this year, official data showed on Tuesday.
The extremely large revisions were a result of changes to the construction and services output, which each contributed around half of the downgrade.
The data also showed output fell in the second quarter of 2008, meaning the recession started earlier.
JONATHAN LOYNES, CHIEF EUROPEAN ECONOMIST, CAPITAL ECONOMICS
“The downward revision to Q1 GDP growth ...clearly leaves an extremely weak platform for growth this year. With the annual rate pulled down from -4.1 percent to -4.9 percent, average GDP growth in 2009 now looks likely to be -4 percent or weaker rather than the -3.5 percent we previously expected.
“Note too that the breakdown is not pretty, with the renewed fall in the household saving ratio from 4 percent to 3 percent underlining that the adjustment in the household sector has a long way yet to go.”
ALAN CLARKE, UK ECONOMIST AT BNP PARIBAS “Obviously the GDP figures are worse than expected — half a percentage point worse.
“We had a reasonably sized output gap before this data came out, and now it half a percentage point bigger — so even more downward pressure on inflation.”
“In Q2 we may well have a positive GDP, but we are not going to be closing the output gap and the deflationary forces are not going to be going away. I think this is good reason for the BoE (Bank of England) to not be any where near an exit strategy any time soon.”
“In terms of the lack of market reaction, it’s month- and quarter-end and the market’s being squeezed and the squeeze goes on, so that’s why there’s little reaction. It was always likely that the bulk of what we had coming out today, and there is a lot of data, was going to be cherry picked.
“The Q1 data is now very historical, secondly they (the ONS) did warn us two weeks ago that the construction element was going to have a substantial revision to it, and three, this is even worse than people were looking for. The contribution of government spending remains unbelievably weak. If it hadn’t been for upward revisions to mining, oil and gas, the overall picture would have been even weaker.
“The underlying message from this is that if we do get a bounce in Q2, it’s more of a correction than a recovery, and we’ve got some very large bills to pay for our very large public sector deficit.”
“It (the GDP figure) was worse than expected. To that extent I think it will keep the MPC cautious about withdrawing stimulus from the economy....I think they will have to expand the QE programme to beyond 150 billion pounds.”
PHILIP SHAW, UK ECONOMIST AT INVESTEC “At first glance the figures do look weaker than expected — and at second glance the broad shape of the economy remains similar.
“Given the pattern of stock shedding, we would still expect a positive effect from the inventory cycle on GDP over the next two or three quarters, but we are certainly starting from a lower base.”
“The figures are disappointing. We knew about the construction revisions in advance and the fall wasn’t quite as big as the ONS had indicated. But we’ve got a much bigger fall in services output.
“It’s disappointing to have a fall as big as this. Obviously, it’s Q1 data, so it’s looking backwards and people are looking towards a rebound in Q3, but it shows us that our starting point was significantly weaker than expected.
“It’s particularly disappointing given the weaker than expected current account figures that we had.”