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Sterling fell today after a shocking slump in the economy fuelled fears over the UK's credit rating.
The pound lost 1.4 cents against the euro to €1.106 after official figures showed the economy shrank 1.9% in the first three months of the year, far more than expected by the Government and the City.
The fall was the biggest since Margaret Thatcher came to power in 1979 and meant the economy has contracted by 4.2% since the start of the recession.
It put Britain on course for the worst recession since the Second World War. Gross domestic product fell 2.5% in the slump of the early 1990s.
"It's shockingly bad," said Alan Clarke, an economist at BNP Paribas in London. "People still aren't pessimistic enough. This casts shadows over any green shoots of recovery. This recession will be more prolonged than people expect."
It came just two days after the Budget and made a mockery of Alistair Darling, who said the economy would "contract by a similar amount" in the first quarter of 2009 as it did in the final quarter of 2008 when it fell 1.6%.
The Chancellor forecast contraction of 3.5% this year before growth of 1.25% in 2010 and 3.5% in 2011 but City economists said that was far too optimistic.
Rating agency Moody's today criticised Treasury plans to borrow a record £175 billion this year to battle recession and another £173 billion and £140 billion in the following two years. Debts are set to smash the £1 trillion level.
"The Government is taking risks with the public finances," it said.
Moody's analysts warned that the UK balance sheet "is deteriorating rapidly due to a combination of weakening revenues and the accumulation of sizeable assets and contingent liabilities as a result of successive bank bailouts".
It said the UK's AAA rating is not immediately under threat but the cost of insuring Government debt rocketed and gilts fluctuated wildly as the City digested the news.
Britain's CDS spreads were trading at 101.33 up from 99.1 before the GDP numbers were released. It means to insure £1 million of UK sovereign debt you would pay £10,133. Before the Budget they were around 85.
David Schnautz of Commerzbank said: "Even if Moody's now says we are not officially reviewing the UK rating, it's more or less perceived to be a matter of time because of the very high dynamics of UK debt deteriorating."
The slump in the first three months of the year was as widespread as it was dramatic.
Manufacturing suffered its worst quarter since 1948 and finance its worst on record.
Reader views (14)
I left UK in 1995. Much of what has happened since then has been predictable. Brown has run the economy all of that time. His media pals praised him for the first 7 years without understanding the seeds he was planting. But he was all about increasing government debt and payroll. Now you all have to pay for it. He "created" jobs, but he didnt create wealth. Government can't. The surviving citizens will have to do that.
- Mark Cleminson, Vancouver, Canada, 26/04/2009 21:16
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Let's hope Guy Fawkes can make a come back!!
- Mark A, Warrington England, 24/04/2009 21:25
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It is only Britain that is totally & irrecoverably bankrupt. As a former consultant to several world governments, I cannot see a recovery for an economy whose economic engine has been dismantled over the last decade & has now been totally removed from the engine bay.
- Richard Prior, Bucharest, Romania, 24/04/2009 16:56
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Darling and Brown are effectively on the board of UK PLC, how do the shareholders rate their performance? How come the shareholders, lenders, and creditors do not get their say?
- Ian, Reading, England, 24/04/2009 16:04
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Pressure is building - Stagflation here we come.
- Dave Davies, Basingstoke, 24/04/2009 16:04
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HOW MUCH MORE WILL THE PEOPLE OF THIS COUNTRY PUT UP WITH FROM CROWD ?
THE PUBLIC MUST BE MORE VOCAL.
ENOUGH IS ENOUGH
- Bernard Parke, GUILDFORD, 24/04/2009 15:53
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Where on earth do you get your figures? Sterling is up to 1.47 against the $ and the market is up 97 points to 4117 at 3.40 p.m. 24 April.
- Val Daniels, Mijas Costa, Spain, 24/04/2009 15:39
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Marianne, I love your 'title'; sock it to them!
- Val Daniels, Mijas Costa, Spain, 24/04/2009 15:24
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COMRADES its over nety good fantersy land,start counting you ROBLES
- Phil, usa, 24/04/2009 15:06
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I predict minus 6% growth this year and minus 3% next year. I bet I'm more accurate than Darling.
- Corbo, Norwich England, 24/04/2009 13:20
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What I can't understand is how anyone with any integrity could turn up for work daily (albeit with, what, is it 11 weeks' holiday/year?) considering such a dismal performance.
- Marianne (Uk National And Tax-Payer), SW France, 24/04/2009 12:29
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Only the voter can bring about the changes that are really needed.VOTE BOTH PARTIES OUT
- David, london, 24/04/2009 11:56
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100% right Ruben.
Already another missing £45billion hole has been found since budget. Quite simply you have to at least double everything Gov liars say, perhaps they have no idea of correct figures and just take a wild guess.For sure all of us now and our Children and their Children will be paying for the last 10+ years Brown and his muppets poor management have caused. Current UK culture as per example of Brown is to reward failure (RBS etc)and they are milking us for every penny they can before they are kicked out at next election.
WHY WAIT UNTIL THEN GET THEM KICKED OUT NOW I CANNOT BELIEVE SOMEONE LEFT IF THE UK WITH SOME BELIEF AND PASSION FOR THE COUNTRY CANNOT FORCE THIS. LETS SEE HOW STRONG CAMERON ETC ARE BY SETTING AN EXAMPLE
- Mike, London England, 24/04/2009 11:01
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"WORST DOWNTURN IN MORE THAN 60 YEARS".
Thank you Gormless Brown.
Thank you Dizzy Darling.
My local Job Centre Plus is seeking a cleaner @ £120 per week. Brown and Darling would not even qualify as a cleaner.
JOE PUBLIC STOPPED LISTENING TO ANYTHING SPOUTED BY GORMLESS BROWN AND DIZZY DARLING A LONG TIME AGO.
The ONLY person who ever entered the House of Conmen with good intentions was Guy Fawkes.
- Reuben Camara, Morecambe/Lancaster, 24/04/2009 10:14
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