UK economy to shrink at fastest rate since 1945

The British economy will shrink by 3.5 percent in 2009, finance minister Alistair Darling said on Wednesday, the fastest rate of contraction since World War Two.

The finance minister also forecast government borrowing of 175 billion pounds ($255 billion) this year, more than 12 percent of GDP as the credit crisis limits tax revenue and brings higher welfare spending. Darling said he expected recovery to begin by the end of the year, but forecast growth of only 1.25 percent in 2010 — downgrading a previous forecast for expansion of 1.5-2.0 percent next year.

"The action already taken here, and internationally, and the measures I will announce today, mean that I expect the economy to start growing again towards the end of the year," Darling told a packed lower house.

The centre-left Labour government needs to engineer a political recovery in time for an election due by mid-2010. Latest polls show the opposition Conservatives with a lead of at least 10 points in opinion polls. Labour has ruled since 1997.

Setting out what he said was a budget to take Britain through the most serious global economic turmoil for over 60 years, Darling stressed the effects of the credit crisis were being felt by all major trading nations.

The immediate outlook is grim. Figures out on Wednesday showed another 73,700 people signed on for unemployment benefit last month. The wider jobless measure stood at 6.7 percent in February, the highest since the year Labour came to power in 1997.

Darling said he was making an additional 1.7 billion pounds available to help people who lose their jobs.

Sterling and government bonds fell after the jobs figures were released and Darling needs to convince financial markets the budget can be brought to heel at some future date.

The Treasury said on Tuesday it can find another 10 billion pounds of "efficiency savings" by 2013 on top of the 5 billion it pencilled in last year.