A Labour minister admitted today that the Henley by-election result has been “terrible” for the party, but said the economy was to blame, not Gordon Brown’s unpopularity.

Labour came a humiliating fifth place behind the British National Party and the Greens last night, securing only 1,066 votes and losing its £500 deposit, as Mr Brown marked his first anniversary as Prime Minister.

“It’s a terrible result,” Ben Bradshaw, the Health Minister, said. “When people start feeling the pinch ... because of rising fuel and food prices, they take out their anxiety and frustration on the incumbent government.”

But David Cameron, the Conservative leader, said that Mr Brown was to blame for much of the economic distress being suffered by voters.

“One can argue forever about all the disasters and all the incompetencies of the last year but, at a time when British families are facing higher prices at the fuel pumps and every time they do the family shop, I think the most important thing about this Prime Minister is that he was in charge of the economy for 10 years and he didn’t put aside money in the good years.”

Mr Brown was not the only party leader to be feeling grim today. Nick Clegg would have been expecting better for the Liberal Democrats in a constituency where they were always going to be the Conservatives' closest challengers.

But the Tory candidate John Howell sailed home with a 10,116 majority, despite Mr Clegg and his colleagues putting in a big effort on behalf of Stephen Kearney.

Although Labour have been downplaying expectations over the by-election since it was announced, claiming that they would lose their deposit with less than 5 per cent of the vote, Labour MPs still worry that the bad result will further damage morale.

The Conservatives threw substantial resources into the campaign with many MPs visiting Henley several times. They repeated the by-election tactics developed in Crewe & Nantwich, with significant backing from key figures in the key seats operation led by Lord Ashcroft.

The Liberal Democrats also put considerable effort into building up their vote under the guidance of Lord Rennard, their election guru. They hired large headquarters and organised repeated visits with Mr Clegg. The seat is home turf for Mr Clegg, as he spent his teenage years in the Oxfordshire village of Chinnor.

Labour MPs will hope that policy announcements will distract from the bad news, beginning next week with the review of healthcare provision by Lord Darzi, the health minister.

Mr Cameron said the by-election was “disastrous” for Labour, and he was heartened that, for the first by-election in a long time, the Tory candidate also picked up votes from the Liberal Democrats.

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