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Following last weeks news of a sharper than expected drop in UK GDP in the first quarter of this year, there was similarly gloomy news from across the pond.  Advance estimates of US GDP for q1 show the economy contracting at an annualised rate of over 6%.  A 30% fall in exports - the biggest drop in 40 years - was a particular drag on growth.  And a 37% fall in business investment didn't help the numebrs either.  But there appears to have been some growth in consumer spending - for the first time since 2008q2.  And while we're on the subject of better news, US consumer confidence also recorded quite a bounce in April - possibly a sign that conditions aren't getting any worse? 

While the export picture was dire for the US economy in the past three months, the outlook for the world's exporting powerhouse - Germany - is just as bad.  Official forecasts released today show that the Germany economy is likely to shrink by 6% this year, with total exports slumping by around a fifth.     

National Statistics first estimate for GDP in the first three months of the years was published today. The fall in output - at 1.9% - was greater than most analysts were expecting and the biggest drop in GDP for three decades. The Chancellor's expectations on Wednesday, that the economy would contract by 1.6% in the first quarter have also been dashed. Further to our comments earlier this week, an even bigger bounce in economic growth will be needed in the coming quarters if we are to get anywhere close to Chancellor's forecasts.

The falls in output were widespread, but the biggest contraction, at 6.2%, was felt in manufacturing.  The numbers for the service sector paint a none-too-rosy picture either - transport, storage and communications was down nearly 3% and business services output dropped by almost 2%, leaving service sector output down by 1.2% overall. 

Early indicators of activity for the second quarter suggest conditions might be stabilising, but further falls in output are nevertheless likely in the next few quarters.  Given the pace of the decline in the economy in the first quarter, the measures put forward to support business in the Budget look even less generous if manufacturing is to play a role is getting us out of the doldrums and on track for better balanced growth in future. 

Lee Hopley, EEF's Head of Economic Policy, gives an overview of the Budget and what it means for members.

Yesterday, we gave our views on the flaky foundations of the Budget, but what did the other economics and business blogs have to say?

Martin Wolf at the FT thinks the Chancellor is flying on a wing and a prayer:

"...is the government at last being realistic about the scale of this disaster? Can Labour hope to get away with it, economically or politically? Does it deserve to do so? These are the questions for markets and analysts now, and for voters at some point in the next 12 months. My answers are, briefly: No, No and No....I have no idea whether the government can both get away with this optimism and postpone the moment of truth... Markets have been forgiving...[but] should investors decide that a return to fiscal stability has become a remote prospect, they may turn against the UK suddenly and brutally."

Dan Roberts at the Guardian picks up on our concern over whether financial markets will be willing and able to swallow all the government's new debt:

"The consequences of refusal – a "gilt strike" to ressurect the 1970s parlance – do not bear thinking about. We had a taste today when City alarm at the chancellor's largesse caused a mini run on gilts and sterling. Dealers were said to be terrified at the prospect of a possible downgrade in government debt by ratings agencies."

Richard Tyler at the Telegraph goes straight to real question. His test for the Budget: Do I feel better?:

"No. More importantly, do you?"

A resounding 'No' would be the response from most manufacturers. 

Today's Budget was never going to be received with rapture by business.

You can read more detail about what it means for your business in this briefing hot off the press from our economics team.

With public borrowing hitting £175bn this year, the Chancellor had limited room to provide business with much relief or to help it invest for the upturn.  Probably the most important measure was the £5bn scheme to compensate for the reduction in trade credit insurance, while the increase in capital allowances and the car scrapping scheme were also helpful. Firms would also have been relieved not to have been hit with any immediate significant rise in costs, save for the increase in statutory redundancy pay.

But it's the scary borrowing numbers and how the government will get them down that loomed large in everyone's minds. The Chancellor projects that public sector borrowing will fall from 12.4% of GDP this year to 5.5% by 2013, with higher tax receipts doing a third of the work and lower public spending growth the rest. But this assumes the economy returns to robust rates of growth, expanding by an annual 3.25% for three years from 2011, based on a return to its trend growth rate of 2.75% per year with growth temporarily boosted by picking up some of the slack built up this year.

The lessons from Japan in the 1990s suggest that the UK and the world economy face major challenges in dealing with the damage caused by the collapse of its banking system. Add in the danger of increased protectionism and a likely long-term increase in the cost of credit and those growth numbers look particularly optimistic.  Business will need to keep its fingers firmly crossed for the next few years that the numbers add up and that the government will not be tapping it up to plug the hole in its Budget. 

The anticipation is over. After months of debate the Chancellor announced in today's budget plans to introduce a car scrapping scheme - which could be in place by as early as next month.

£300m has been allocated to the scheme, which offers £2,000 for motorists replacing a vehicle at least ten years old for a new one.

The funding will be shared by the car industry - with £1,000 to come from the taxpayer and the car manufacturers that sign up paying the other £1,000. The scheme will run until March 2010 - or until the funding runs out.

Unlike the European schemes, there are no restrictions on the new car being bought - it does not have to be a low-emission car. This is to help sales of luxury cars including Jaguar Land Rover and Aston Martin which are produced here in the UK.

This is welcome news for manufacturers - not just those in the automotive industry - but for the thousands of companies down the supply chain who rely on orders from the sector. And, as EEF research shows, there is pent-up demand in the UK and, with current exchange rates making UK cars cheaper, we may see an increase in UK-produced car sales.

But a lot will depend on how many car manufacturers sign up to the scheme.

A key challenge for the Chancellor in today's Budget was how he was going to to restore credibility to the public finances without choking off economic recovery and growth.

In the end, he's opted for a mix of two parts slower public spending and one part tax rises.

Looking at the Budget in detail, public spending increases are set to slow, from 1.1.% per year to just 0.7% per year after 2011. But because those cuts fall in the next spending round - and to the next government - the Chancellor didn't have to provide any details on the hard decisions on which cuts to make.

The tax rises planned for 2011-12 are also significant:

• £1.75 bn from fuel duty increases;
• £1.80 bn from a new 50p rate on incomes over £150k; and
• £4.82 bn from increases in NICs.

That's almost £8.5 bn (0.6% of GDP) in tax increase in 2011, the year the Chancellor expects the economy to grow by 3.5%.

The Chancellor also confirmed that the government borrowing will rise to £175 bn in 2009-10, requiring the government to issue £220 bn in gilts in 2009-10, a 50% increase over last year. Medium-term gilts account for half that increase, which could present a problem for the government if and when the Bank of England tries to sell back £75bn in medium-term gilts it will have bought because of quantitative easing.

The bottom line for UK manufacturers?

That if the Chancellor’s overly optimistic growth forecasts fail to materialise or if the government struggles to raise money in financial markets, businesses could face higher taxes in an effort to plug the gap.

This is our initial response to the Budget, more to follow...

We're going to be watching the Budget and doing the usual rounds of phone calls with Ministers and officials just after.

Check back here later for further detail on what the Budget means for business and the economy...we'll be providing more detials throughout the day.