Contraction in GDP is fastest in fifty years

UK e

UK economy contracted at the fastest pace since 1958 in the first quarter of 2009, raising expectations that the Bank of England&rsquo;s Monetary Policy Committee could expand quantitative easing.<br /><br />The Office for National Statistics said yesterday that it had revised downwards its estimate for first quarter GDP to -2.4 per cent from -1.9 per cent and it is now 4.9 per cent lower than the first quarter of 2008.<br /><br />But economists are stressing that more recent data suggest an improvement in conditions. ING&rsquo;s James Knightley said: &ldquo;These figures are much worse than expected, but since we are now on the verge of starting the third quarter it should only provide a temporary knock to sentiment.&rdquo;<br /><br />The revisions were mostly down to new data for construction output, which is now expected to have fallen by 6.9 per cent compared to a previous estimation of 2.4 per cent. But recent purchasing managers&rsquo; indices point to a much smaller contraction in the second quarter as firms finish destocking.<br /><br />While the view remains that the worst of the recession is behind us, David Kern, chief economist at the British Chamber of Commerce, said: &ldquo;It is important to persevere with aggressive quantitative easing. At the same time, the government must urgently present a credible medium-term plan for restoring stability to our public finances.&rdquo;<br /><br />Investec&rsquo;s David Page also thought that the revisions are likely to boost the case for further expansion of quantitative easing from the Bank of England&rsquo;s MPC.