Graphic: How the Chancellor and City economists compare

Alistair Darling’s claim that Britain would climb out of recession by the end of the year was in shreds yesterday after official figures showed that the recession was biting far deeper than he had predicted.

Two days after the Chancellor told MPs that he expected the economy would have contracted by 1.6 per cent in the first three months of the year, figures released by the Office for National Statistics revealed that it had shrunk by 1.9 per cent — a difference equivalent to almost £1 billion.

Britain’s economy is now shrinking at the fastest pace in 30 years. The drop in the last quarter is the worst since 1979 and is the first time that the economy has shrunk by more than 1 per cent in two successive quarters since records began in 1948.

The £924 million discrepancy blows a further hole in Mr Darling’s claim that the economy will contract by 3.5 per cent this year. That prediction has already been rubbished by the International Monetary Fund and by City economists, most of whom believe the real figure will be 4 per cent or worse.

It also casts further doubt on the Chancellor’s claim that the economy will grow by 1.25 per cent next year, a year in which most economists believe that it will, at best, stagnate.

David Cameron, the Conservative leader, said that government forecasts for growth were “probably junk”. George Osborne, the Shadow Chancellor, said: “This Budget has unravelled quicker then any in living memory. This is the week when the public’s confidence in the Government to be straight about the Budget evaporated.”

Mr Darling downplayed the significance of the discrepancy between his estimates and the official figures, insisting that he had been “saying for some time” that the first quarter “would be difficult”. He stuck to his prediction that the downturn would end this year but refused to say that the economy was over the worst. He also cast doubt on whether growth would restart by summer — something virtually essential for his predictions to be fulfilled. Mr Darling refused, however, to make any concession over economic forecasts that now look all but unattainable to the experts. Speaking in Washington, where he is holding talks with the IMF, he said: “My forecasts are based on what I think is going to happen in the future.

“There is lots of uncertainty about at the present time, everybody knows that, but I believe that the forecast that I made and set out in the Budget was right, is appropriate and is based on the best information I have.”

Every area of the economy contracted except agriculture and public services, with manufacturing output dropping by the biggest margin in more than 60 years.

That the Treasury’s forecasts are turning out to be so wrong so early into the year potentially has huge implications. During Gordon Brown’s time as Chancellor, the Treasury often proved to be more accurate at forecasting how the economy would perform than most economists in the City, including those at the Bank of England. However, the Treasury forecasters also proved singularly unsuccessful at predicting what this would mean for the public finances.

Colin Ellis, of Daiwa Securities, said: “Today’s data are undoubtedly bad and could serve as a rude awakening to anyone who had started dreaming of an eventual recovery.”

Much of the contraction in the first three months of the year was driven by a startling decline in output from the services sector, which accounts for 75 per cent of the UK economy. Output fell 1.2 per cent, the biggest drop since 1979.

— Viewers of the animated comedy South Park saw Gordon Brown wreak nuclear war upon Finland last night, as punishment for scuppering his plot to solve the global economic downturn by stealing money from aliens. The episode, screened on the Comedy Central channel, was produced before the Budget announcement.

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