The economy is set to record its sharpest contraction in almost 30 years, with national income falling by about 1.5 per cent in the fourth quarter of last year.

The National Institute for Economic and Social Research, a think-tank with a strong record in forecasting gross domestic product, made the forecast after official data yesterday showed that industrial production fell by much more than economists had expected. The three months to December are shaping up to be the single worst quarter since spring 1982, according to the NIESR, which marked it as one of the five worst quarters on record since 1955.