The economy shrank at its worst rate in 30 years in the first quarter, contracting faster than predicted by Alistair Darling and casting doubt on forecasts the chancellor made in his Budget just three days ago.

The 1.9 per cent contraction in the first three months of the year is an embarrassment for Mr Darling, who expected the fall to be similar to the 1.6 per cent fall in output at the end of last year.

The figure amounted to the worst economic performance since the third quarter of 1979.

The Treasury insisted last night that its forecasts for the public finances were not necessarily altered by the more rapid decline in national output shown in the preliminary official data.

Standing by the forecast of a deficit this year of 12 per cent of gross domestic product, aides to the chancellor said this depended much more on what happens in the months to come rather than in the past. Mr Darling insisted: “I have always said the first quarter of the year would be difficult” and stood by his expectation of a return to growth by the end of the year after a contraction in 2009 of 3.5 per cent.

Sterling initially fell to a two-week low against the euro after the worse than expected data, though it later recovered some of its losses. Equity markets rose strongly as traders ignored the GDP figures and focused on prospects for recovery. The FTSE 100 jumped 3.4 per cent to its highest in more than two months.

The Conservatives were delighted with the figures as they backed their claim that the Budget rested on fantasy figures.

Claiming the Budget had “unravelled quicker than any in living memory”, George Osborne, the shadow chancellor, said: “This is worrying as it means the recession will be deeper and people will suffer more.”

But the scale of the downturn has put pressure on David Cameron, the Conservative leader, to explain how exactly a Tory government would curb the deficit. He said on Friday he wanted to scrap the new 50p rate for earnings above £150,000 but it would join “a queue” of priorities.

The steep GDP contraction was caused by an unexpectedly large drop in the output of “other business services”, such as lawyers, architects and consultants.

Amid the renewed fears over the depth and severity of the downturn, Mr Cameron called for a “massive culture change” in government to rein in public spending.