After one year with Gordon as PM, minister admits by-election defeat was a disaster

The Prime Minister may not have much to smile about, but he was wearing a wide grin during a visit to a community project in Manchester to celebrate one year at Number 10.

Minister Ben Bradshaw blamed the defeat in Henley-on-Thames on the economy rather than Mr Brown's unpopularity.

He also insisted the party had bounced back to win the general election after similarly bad performances in the past.

Gordon Brown carried on 'business and usual' and smiled his way through a visit to a community project in Sale Moor, Mancester

Conservative candidate John Howell has won the Henley-on-Thames by-election with 19,796 votes

Mr Brown, speaking as he appeared in Manchester to promote a new strategy on public services, shrugged off the defeat, saying "by-elections come and by-elections go".

Responding to the news that Labour candidate Richard McKenzie lost his deposit as he trailed in behind the British National Party and the Greens, Mr Brown added: "Of course we have to listen to what people say.

"But my main job is to improve our public services, to get the economy moving forward, to make sure that in the health service and education people have the best services that they want and I am going to continue to do that.

"And I think people know that we are going through difficult times in the economy. It's my job to steer us through these difficult times.

Mr Brown faced to some tough question ... and not just from these school children

"And people facing higher petrol bills, higher gas and electricity bills, people facing high food prices, it's my job to make sure I can do more to help people's standard of living improve."

Tory Candidate John Howell held the seat with a majority of 10,116, while Liberal Democrat Stephen Kearney came second with 9,680.

In a bad night for Labour, McKenzie only beat UKIP by around 200 votes and , even more embarrassingly, only polled around 800 votes more than the Monster Raving Loony Party's candidate Bananaman Owen.

The Conservatives increased their share of the vote by more than three per cent, and there was a slight swing from the Lib Dems to the Tories, despite the slightly lower turnout than 2005.

Mr Bradshaw told the BBC Radio 4's Today programme: 'I'm not trying to minimise my disappointment - it's a terrible result.'

Mr Bradshaw said Mr Brown was working in a 'very difficult context'.

Top banana: Conservative victor John Howell surrounded by fellow candidates including the BNP's Timothy Rait, left, Ukip's Chris Adams, right, and the Loony candidate...Bananaman Owen

'We've got the credit crunch, we have got a doubling in oil prices, we have had food prices rise by 40 per cent since the early spring. That's a difficult economic backdrop.'

Mr Bradshaw added: 'I don't believe he is personally unpopular, because if you drill down into the opinion polls and the focus groups' work there is almost a complete correlation between (voters') economic situation and their feelings about the Prime Minister.'

Labour never had high hopes in the safe Tory seat but the drubbing shows the extent to which Mr Brown has bombed during his first 12 months as premier.

The outcome is among Labour's worst by-election results in decades.

Labour's candidate Richard McKenzie even lost his deposit, failing to pool at least five per cent of the overall share of the vote.

The other surprise was the success of the Greens who comfortably beat Labour, and more worryingly the rise of the BNP.

Labour's candidate Richard McKenzie (left) stands with Mark Stevenson (centre) of the Green Party and Timothy Rait of the British National Party before the Henley-on-Thames by-election results were announced last night

The disastrous result comes with opinion polls predicting a Conservative landslide at the next General Election, Labour on the verge of bankruptcy, growing unrest among backbenchers and continuing whispers of a leadership challenge.

Mr Howell, an Oxfordshire councillor, said that the voters of Henley sent out a message to Gordon Brown that they wanted 'something done about he rising cost of living and a U-turn on road tax'.

He said: 'People on the doorsteps are saying that Conservatives have changed. People want Labour off their backs. It is our message that we will stand up for them. I am a local man who understands their problems.'

Labour Party grandees warned that the PM needed to move fast to restore his reputation.

Conservative candidate John Howell leaves the Thame leisure centre in Oxfordshire after his victory

Labour MP for Reading West, Martin Salter, who helped run the Henley campaign, tried to put a brave face on the result last night.

He said: 'It's a grim result. Our vote was squeezed very, very badly.

'But it's the same as happened in the Winchester by-election a few years ago, where we were reduced to 1.7 per cent under Tony Blair, but he went on to win the next general election.

'By-elections are very rarely good guides as to what happens in the next general election.'

The Henley by-election was triggered when former MP Boris Johnson quit earlier this month to become London Mayor.

At the 2005 General Election, he won with 53.5 per cent of the vote, the LibDems came second on 26 per cent with Labour third on 14.7 per cent, polling a total of 6,862 votes.

The result was also crucial for to Nick Clegg's leadership credentials. six months after taking over from Sir Menzies Campbell.

He visited the constituency seven times and poured huge resources into squeezing the Tory's 12,793 majority.

But the 0.81 per cent swing from Lib Dems to the Tories marks a huge disappointment for Mr Clegg.

The Lib Dems did score nearly 28 per cent of the vote but this was only up 1.84 per cent on their results in 2005 - not a big enough share of the vote to show they are serious contenders.

The poll is a huge shot in the arm for David Cameron who has built on Tory successes in the Crewe and Nantwich by-election and local and London elections last month.

Against expectations they increased their share of the vote to 57 per cent, while Labour's share fell by a massive 12 per cent.

Election agent and shadow work and pension secretary Chris Grayling admitted:

'We are thrilled this is the first time since 1984 that we have won a by-election convincingly against the Liberal Democrats and I think it shows that their legendary by-election campaign machine has run out of steam.

'We did not expect a result as good as this. To have a majority bigger than Boris, who was a larger than life character, is a tribute to the campaign team, the party but also to the people of south Oxfordshire who I think have turned away from the nasty tactics that have been employed against us."

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