Page last updated at 12:53 GMT, Saturday, 10 January 2009

UK slump 'is worst for 28 years'

Closing down sale signs
The downturn has hit a number of retailers

The UK economy shrank by 1.5% in the last three months of 2008, its worst performance in 28 years, a think tank has concluded.

The National Institute of Economic and Social Research (NIESR) also warned the economic downturn was worsening.

Its estimation comes two weeks ahead of the release of official statistics that will show if the UK is in recession.

The think tank also said the government's estimates for growth this year and next were too optimistic.

Official data showed the economy shrank 0.6% between July and September.

The UK will formally be in recession if the figures released by the Office of National Statistics show this contraction continuing in the fourth quarter.

Increased unemployment

(The chancellor's) forecast of a return to a reasonable rate of growth in 2010 looks too optimistic
NIESR economist Simon Kirby

The NIESR said: "Since 1955, when quarterly figures were first produced, there have been only five quarters in which output has fallen more sharply, with the lowest figure of -2.6% in 1958."

The think tank said its track record in producing early estimates of UK gross domestic product suggested its figure for October to December would only be between 0.1 and 0.2% different to the first official estimate.

It said bank lending - or the lack of it - lies at the heart of the current malaise and the government may have to consider other ways of getting money to consumers and companies.

NIESR economist Simon Kirby said the chancellor's prediction that the economy would shrink by 1% this year was "overly optimistic" and normal growth was unlikely even by 2010.

"I think it's certainly the case that the chancellor's forecast published in November are not consistent with the numbers we have released," he said.

"Certainly his forecast for 2009 does look overly optimistic. In actual fact his forecast of a return to a reasonable rate of growth in 2010 also looks too optimistic."

graph

There are growing signs on the High Street that the economic downturn is worsening.

While shops such as Woolworths, Zavvi, Whittards, Viyella, and The Officers Club have gone into administration, the Office for National Statistics said on Friday that UK manufacturing output was falling at its fastest pace since 1981.

Meanwhile, the number of people out of work in the UK rose by 137,000 to 1.86 million in the three months to October - the highest level since 1997.

However, at the same time, supermarket chains Waitrose and Sainsbury's have both said they have just seen their busiest Christmas trading periods.

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