Sterling tumbles as GDP shrinks at fastest rate in 30 years
24th April 2009
The Pound slipped across the board on Friday morning after Britain’s economy contracted at its sharpest rate since 1979, sparking fears of a deeper and more protracted recession in the coming months.
The Office for National Statistics revealed that gross domestic product in the first three months of 2009 fell by a larger-than-expected 1.9% on the quarter, posting its sharpest decline in 30 years. The quarterly contraction translated into a 4.1% annual fall, the worst reading since 1980. The Q1 figures are the first release of any G7 country and underline the downside risks to Alistair Darling’s forecast for a 3.5% contraction in the British economy this year before a bounce back to growth in 2010.
On Wednesday, the UK government anticipated a massive enlargement in public debt and announced a surprise tax hike for high earners in its annual budget. UK finance mister Alistair Darling said the economy would likely shrink by 3.5% while forecasting government borrowing if £175 billion, more than 12% of GDP. The government will subsequently issue £220 billion worth of government bonds in the 2009/10 fiscal year, well above the £147.9 billion it estimated last month. To plug the yawning gap in UK Plc’s finances, the Chancellor said income tax for anyone earning in excess of £150,000 would rise to 50% from 40% with effect from April 2010.
Darling added that he expected a modest recovery in the British economy towards the end of this year, forecasting 1.25% growth in 2010. However, hours later the International Monetary Fund released its own economic forecasts, highlighting a more pessimistic 4.1% contraction this year and a further decline of 0.4% in 2010.