U.K. Economy Falls Into Recession

--UK is officially in recession, dropping 1.6% in Q4 --The speed and bredth of the deterioration will make it likely the deepest in decades By LAURENCE NORMAN and ALISTAIR MACDONALD LONDON -- The U.K. economy turned in its worst performance since 1980 in the last quarter of 2008, highlighting the pressures on Prime Minister Gordon Brown as his government seeks ways to ease what is threatening to be a deep and prolonged recession. U.K. bank stocks fell and the pound touched a 23-year low against the U.S. dollar Friday after the U.K. government announced real gross domestic product -- a broad measure of economic activity, adjusted for inflation -- shrank a larger-than-expected 1.5% in the last three months of 2008 from the previous quarter. Combined with a 0.6% decline in the third quarter, it marks the first time since 1991 that the U.K. has had two consecutive quarters of contraction, a common definition of recession. Fourth-quarter real GDP was down 1.3% from a year earlier. The speed and breadth of the economy's deterioration make it increasingly likely that the recession will be the deepest in decades, with damaging consequences for already strained public finances and for Mr. Brown's political fortunes. The U.K. government has already put hundreds of billions of pounds into stimulus and financial bailout measures. On Friday, Mr. Brown said his government is fighting the recession "with every weapon at our disposal," and called for greater international cooperation to address the banking crisis at the center of the global downturn. His Treasury chief, Alistair Darling, acknowledged the pace of the downturn had come as a surprise, and said the government's measures would take time to work. The U.K. joins a host of other major countries in recession. The U.S. contraction started in December 2007, while economies in Japan and the euro zone shrank in the second and third quarters. The U.K. currency and bank stocks fell after the GDP report, amid persistent concerns that the bleak economic outlook will translate into further losses at banks. The pound fell as low as $1.35 before recovering slightly to $1.38, down nearly nine cents over the past week. Shares in Barclays PLC fell 14% to £51.20 ($71.12). The dismal data are likely to prompt further interest-rate cuts by the Bank of England, which has already slashed its target rate three percentage points in three months, to 1.50%, the lowest level in the bank's 315-year history. Bank of England Governor Mervyn King said this week the bank is prepared to take "unconventional" measures to support the economy, such as pumping more money into the markets through direct purchases of mortgage bonds, corporate bonds and other types. In the GDP report, the government said services output fell 1% and industrial production dropped 3.9% on the quarter. Both were the biggest declines since the 1970s. The government also released retail-sales data Friday that showed a seasonally adjusted 1.6% rise in December from November, but said the result was likely inflated by unusual factors, such as a cut in the value-added tax. Meanwhile, the pound's fall in recent months has done little to boost exports. Slowdowns in the economies of Britain's main trading partners, the European Union and U.S., mean they are less likely to increase consumption of British-made goods. This month, the U.K. reported its global goods trade deficit widened to £8.3 billion in November, from £7.6 billion in October. Exports to non-EU countries particularly the U.S. slumped, creating the largest deficit since records began in 1697. "It doesn't matter what the price of something is if your customer hasn't got money," said David Sandall, managing director of Lynton Exports Ltd., a food exporter based in Cheshire, Northern England.