The economy is likely to shrink by at least another 1.5% in the first quarter of the year, economists warned yesterday after official figures showed manufacturing output suffered the largest annual decline since 1981.

With the first indications for 2009 proving much worse than expected, the economy is on course to contract at least 3% in 2009, compared with the Treasury’s central forecast last November that output would fall by only 1%. Capital Economics, a consultancy, said the slump could reach 4% this year.

But investors put aside the gloomy data and sent the stock market rallying as traders were cheered by an internal staff memo circulated by Vikram Pandit, Citigroup chief executive, claiming the bank had been profitable in the first two months of the year.

Financial Times