The U.K. economy contracted the most since 1980 in the fourth quarter as the financial crisis prompted spending by consumers and companies to shrivel. Gross domestic product fell 1.5 percent from the third quarter, matching the previous estimate, the Office for National Statistics said today in London. Consumer spending declined 0.7 percent on the quarter, the most since 1991, while fixed investment dropped 2.3 percent. The British economy needs additional stimulus to stem the recession and head off the risk of deflation, Bank of England policy maker Andrew Sentance said yesterday. Prime Minister Gordon Brown’s government may announce further measures this week to support banks including Royal Bank of Scotland Group Plc as the financial crisis persists. “The U.K. economy is certainly in a recession if not a mini depression,” Neil Mackinnon, chief economist at ECU Plc in London and a former U.K. Treasury official, said in an interview on Bloomberg Television. “Things are likely to get worse before they get better.” The central bank will take its next decision on March 5. Policy makers have already cut the benchmark interest rate to 1 percent, a record low, and have signalled they want the power to create money to help stimulate the economy. The drop in gross domestic product was less than the 1.6 percent median forecast of 26 economists in a Bloomberg News survey. On the year, GDP fell 1.9 percent, exceeding the median prediction of 1.8 percent. Spending Cuts Retailers Stylo Plc, JJB Sports Plc, Woolworths Group Plc, Zavvi Group and Adams Childrenswear Ltd. are among the U.K. business that have collapsed in the past six months as consumers cut spending. Barratt Developments Plc, the U.K.’s second-biggest homebuilder by volume, today wrote down the value of land holdings and unfinished stock by 495 million pounds ($719.4 million) amid Britain’s biggest housing slump in 30 years. Today’s report showed that industrial production dropped 4.5 percent in the quarter, compared with a previous estimate of 3.9 percent. Manufacturing fell 5.1 percent, down from an estimate of 4.6 percent, the statistics office said. Officials revised up their measure of the drop in services on the quarter. The category fell 0.9 percent instead of a previous estimate of a 1 percent decline. Outside Risk Sentance said yesterday he sees an “outside risk” of “persistent” price declines. Deputy Governor John Gieve said Feb. 20 that Britain faced a risk of a decade-long depression. Both officials said economic stimulus from the central bank and the government will stem the slide in growth. Chancellor of the Exchequer Alistair Darling has ordered Northern Rock Plc to expand lending by 14 billion pounds. The Treasury will provide details this week on a program to guarantee hundreds of billions of pounds in loans. Royal Bank of Scotland plans to cut costs by more than 1 billion pounds and segregate toxic assets in a new unit as it prepares for the government insurance program, according to a person familiar with the situation.

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