The economy contracted by 1.9 per cent in the first three months of the year, at the fastest rate since 1979, when Margaret Thatcher came to power, as the country sank further into recession, official figures showed this morning.

The dramatic fall in GDP, the total value of all goods and services produced by a country, is far higher than the 1.6 per cent contraction predicted by Alistair Darling in the Budget.

The Chancellor has been widely derided for the economic predictions he gave on Wednesday, which also forecast that the UK economy would, after shrinking by 3.5 per cent in 2009, begin to recover towards the end of the year and grow by 1.25 per cent over 2010.

In contrast, the International Monetary Fund said that it expected the UK economy to shrink by 4.1 per cent this year and for the slowdown to continue into 2010, when GDP will contract by 0.4 per cent.

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The sharp acceleration of the slowdown in the first three months of this year is far higher than the 1.6 per cent contraction recorded between October and December 2008.

Much of the contraction was driven by an increase in the rate of decline for the services sector, which accounts for 75 per cent of the UK economy.

Service output fell 1.2 per cent in the first quarter, after a 0.8 per cent drop in the final three months of last year, dragged down by a significant drop in business services, the Office for National Statistics (ONS) said.

It was the biggest decline in services output since 1979.

The manufacturing sector also came under more pressure, recording the biggest quarterly fall in output between January and March since official records began in 1948.

The depth of the downturn in the British economy was illustrated by car production figures for March which revealed that output had slumped by 51.3 per cent. On the upside, the ONS published data showing that retail sale had risen by 0.3 per cent in March compared to February and increased by 1.5 per cent from the same month last year.

However, this morning, John Lewis, the group that owns the department store chain and Waitrose and is considered a bellwether of activity on the high street, reported that trade in the week to April 18 fell by 9.5 per cent.

Today's GDP data confirms that the country has been in recession for nine months. A recession is defined as two or more consecutive quarters of contraction.

Vicky Redwood, UK economist for Capital Economics, said that today's figures "deal an instant blow to the Chancellor’s forecast of a 3.5 per cent drop in GDP this year. For that to be achieved, GDP would have to be broadly flat from the second quarter onwards, yet the surveys are already pointing to another fall of 1 per cent or so in the second quarer."

Colin Ellis, chief UK and European economist for Daiwa, said: "Today's data are undoubtedly bad, and could serve as a rude awakening to anyone who had started dreaming of an eventual recovery (stand up, Mr Brown)."

However, Mr Ellis also sounded a note of hope.

He said: "The marked size of the fall could even end up bolstering hopes that further cuts in output may be less pronounced, because if so much of the adjustment in the economy has already come through, maybe less is required going forwards."

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