Economic crisis widens as Britain enters recession

LONDON (AFP) - The global economic crisis claimed more victims on Friday as Britain officially entered a recession and job losses and bankruptcies continued to ripple across Europe, Japan and the United States.
By reporting its first recession since 1991, Britain joins the United States, the eurozone and Japan in what promises to be an extremely challenging year for leading world economies left reeling by the credit crunch.
Government figures showed that Britain's gross domestic product (GDP) shrank 1.5 percent in the fourth quarter of 2008 compared with the previous quarter, when it contracted 0.6 percent " signalling the start of a recession.
Howard Archer, an analyst at IHS Global Insight, warned of worse to come.
"Our current forecast is for UK GDP to contract by 2.9 percent in 2009... This would be the sharpest contraction since World War II," he said.
British Prime Minister Gordon Brown said before the announcement on Friday that he was using "every weapon at our disposal" to fight the economic crisis.
But the report of recession immediately hit the British pound, which has already been trading at historic lows against the US dollar and the euro.
Sterling dropped to 1.3503 dollars in morning trade in London, hitting its lowest level against the US currency since September 1985.
Adding to the drumbeat of bad news from Britain, iconic carmaker Bentley said it would suspend production for up to seven weeks due to falling demand among a rich-and-famous customer base that includes Queen Elizabeth II.
Britain's Office for National Statistics (ONS) also said public finances worsened last month to show a record deficit of 44.2 billion pounds (60b dollars, 47 billion euros) after the state's bailout of Royal Bank of Scotland.
The only slight relief was a surprise 1.6 percent month-on-month rise in retail sales in December but the ONS cautioned that the gain was driven mainly by a cut in value-added tax and shops holding early sales before Christmas.
Meanwhile the crisis showed no signs of respite in other parts of the world.
US software giant Microsoft announced it would have to cut up to 5,000 jobs, Japanese tyremaker Bridgestone said it was shedding hundreds of workers and German computer chip maker Qimonda going bust because of a slump in demand.
In Russia, new figures showed industrial production falling by 10.3 percent last month compared to December 2007 while the Russian ruble was expected to fall further after the central bank allowed it to devalue by up to 10pc.