The preliminary estimate of GDP in the final quarter of last year confirmed that the economy has plunged into recession. The 1.5% quarterly drop in output in Q4 means that the economy contracted by over 2% in the second half of 2008. There are signs of a trough in some indicators, such as the manufacturing PMI and mortgage approvals. But as yet, there are no signs of any meaningful improvement. We now think that real GDP will fall by 3% this year. And we still expect a further 1% contraction in 2010. This recession now looks set to be as bad as that in the early 1980s.
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