British economy shrinks at fastest rate since 1979

Gross domestic product (GDP) contracted by 1.9 percent on a quarterly basis compared with a decline of 1.6 percent in the last quarter of 2008, the Office for National Statistics (ONS) said in a statement.

The first quarter data for the British economy, which has been in recession since mid-2008, was far worse than analyst expectations for negative growth of 1.4 percent, according to Dow Jones Newswires.

It was the sharpest fall since the third quarter of 1979 -- the year that Margaret Thatcher was elected prime minister.

Britain's finance minister Alistair Darling surprised markets this week by forecasting a return to growth in late 2009, but following Friday's figures, economists agreed with newspaper analysis that such optimism was hard to believe.

"Today's GDP report does again highlight how optimistic Chancellor (of the Exchequer) Darling was in his budget assumptions" delivered this week, said economist James Knightley at ING Bank.

The ONS added that the economy shrank 4.1 percent in the first quarter compared with the first three months of 2008. The annual output fall was the largest since 1980. Analysts had forecast an annual contraction of 3.7 percent.

Darling had come under fire on Thursday from newspapers, analysts and political opponents for what they claimed were overly optimistic forecasts for Britain's recession-hit economy.

Delivering Britain's annual budget on Wednesday, Darling said Britain would return to growth in late 2009, enjoy GDP growth of 1.25 percent in 2010 and 3.5 percent in 2010.

British newspapers argued that the governments budget delivered Wednesday targeted a general election, due mid-2010 at the latest, at the expense of real action.

The right-wing Daily Mail dismissed the chancellor of the exchequer Darling's growth projections with the headline "Alistair in Wonderland," referring to Lewis Carrolls novel "Alice in Wonderland."

On a positive note, the ONS also revealed on Friday that British retail sales rose by 0.3 percent in March and by 1.5 percent in the same month from a year earlier.

Market expectations had been for a monthly drop of 0.5 percent and an annual increase of 1.3 percent.

However the picture was not at all rosy for the ailing car sector. Car production in Britain slumped 51.3 percent in March compared with a year earlier, industry body SMMT said Friday, as the nations worst recession since World War II slams the brakes on demand.

A total 61,829 cars were made last month, the Society of Motor Manufacturers and Traders said in a statement published in a week that saw Britain's government launch a scheme to encourage the purchase of new vehicles.

"The motor industry has an essential role in the UK's economic future, but it will be some months before we see any significant increase in output," SMMT chief executive Paul Everitt said in the statement.

The Labour government on Wednesday announced it would pay drivers to swap old cars for new models under a scheme to boost Britain's stricken auto sector, mirroring moves in Germany and other European nations.

British taxpayers would provide motorists with a 2,000-pound (2,260-euro, 2,930-dollar) discount on new cars bought when they trade in cars over 10 years old.

The move, which the government estimates will cost around 300 million pounds, runs to March 2010.