U.K. Economy Shrank Most Since 1980, Niesr Data Show

The U.K. economy shrank at the fastest pace in almost three decades during the fourth quarter as the recession deepened, the National Institute for Economic and Social Research said.

Gross domestic product fell 1.5 percent in the three months through December, compared with a drop of 0.6 percent in the third quarter, the London-based institute, whose clients include the Treasury and the central bank, estimated in a report today. That would be the worst quarterly contraction since 1980, when Britain was in the grips of a steel workers’ strike.

“The rate of recession increased sharply in the autumn of last year,” Niesr said in a statement. “Since 1955, when quarterly figures were first produced, there have been only five quarters in which output has fallen more.”

Manufacturing extended its worst slump since 1980 in November, according to data released yesterday and factored into Niesr’s estimate. The Bank of England this week cut the benchmark interest rate to 1.5 percent, the lowest since its creation in 1694, in a bid to stem the recession.

Banks are rationing loans, starving households and businesses of credit, exacerbating the property market slump and driving up unemployment. A survey by the U.K. central bank released this month showed that financial institutions plan to constrict credit further, even after the government unveiled a 50 billion-pound ($75 billion) rescue plan last year.

Britain entered a recession in 1980 that was to last five quarters, prompting unemployment to surge. Prime Minister Margaret Thatcher responded to criticisms of a policy U-turn on the economy and her handling of the labor unions by telling the ruling Conservative Party conference in October that year that “the lady’s not for turning.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=avvCpfiEJkcA&refer=home

How comes that EUR/GBP rallies to 0.88.54 this week ? I expected EUR to rally with an interest differential of 150 bp ?

 

The pound fell in november and december. The market does not believe Trichet when he says he is keeping rates at 2.5% and the outloook for the euro countries is now worse than the UK. The market was very thin in the decline last year as european banks had to sell pounds as they needed euros on their balance sheets at year end.