Revised estimates for economic growth out today show the UK slump is greater than previously thought.

Data on from the Office for National Statistics (ONS) on gross domestic product (GDP) show the final quarter contract of 1.5 per cent was not revised but the third quarter (Q3) of 2008 was revised further downwards.

The quarterly drop in Q3 GDP was put at 0.7 per cent.

As a result the year-on-year drop in GDP in the fourth quarter increase
to 1.9 per cent – the worst performance since the second quarter of 1991.

The 1.5 per cent quarter-on-quarter drop in GDP in the fourth quarter was the sharpest quarterly drop since 1980.

Howard Archer, chief UK economist at HIS Global Insight, now predicts a 3.3 per cent drop in GDP over in 2009.

“The first half of the year is likely to be particularly painful. This would be the sharpest contraction since the immediate aftermath of the Second World War,” he said.

“Furthermore, we increasingly suspect that the UK could suffer further modest overall GDP contraction in 2010 as recovery develops very gradually.”

He added with the economy continuing to contract and credit conditions remaining tough, the Bank of England was likely to cut interest rates to 0.5 per cent in March.

“Although it is not a cast iron certainty given the MPC’s concerns about the negative repercussions that very low interest rates might have on the banking
sector and some doubts about how much benefit another reduction will have,” he said.

After March, Mr Archer predicted the Bank of England would focus on quantitative easing to boost the economy.