UK’s recession deeper than feared

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The double-dip recession is deeper than originally feared as revised figures have shown a sharper decline in the economy in the first three months of the year.

Gross domestic product (GDP) shrank by 0.3 per cent between January and March, the Office for National Statistics (ONS) said, down from a first estimate of 0.2 per cent.

The change was driven by a worse-than-previously estimated performance from the nation’s builders, as construction output fell 4.8 per cent, the steepest decline in 11 years.

The second estimate, which could be revised later, means the UK is in a technical recession – defined as two quarters of decline in a row – following a 0.2 per cent fall in the final three months of 2011.

The downward revision will heap more pressure on the Government and fuel criticism that Chancellor George Osborne’s austerity measures are choking off the recovery. It will also dash hopes that the figures should be revised upwards, as some economists had claimed.

The second estimate provides data for the expenditure side of the economy for the first time and revealed a slowdown in household spending, which increased by 0.1 per cent in the first quarter, compared to 0.4 per cent growth in the final quarter of last year.

Household spending declined for three quarters in a row last year and has been hit by high inflation, sluggish wage growth and soaring unemployment.

But Government spending surged 1.6 per cent, the biggest rise since the first quarter of 2008, driven by spending on health and defence. The services sector, which accounts for three-quarters of the economy, saw unrevised growth of 0.1 per cent, after a decline of 0.1 per cent between October and December last year.

The industrial production sector declined at an unrevised 0.4 per cent, with manufacturing flat after a 0.7 per cent decline in the previous quarter.

Economists and business leaders have warned that the figures could lead businesses to rein in spending at a time when they are being encouraged to invest to stimulate growth.

But the current downturn is expected to be nothing like as severe as the year-long recession of 2008/09.

In another set of data, business investment rose by £1.1bn, or 4 per cent, to £30.8bn compared to the previous quarter.

The rise was driven by investment in electricity, gas and water, and mining and quarrying industries, the ONS said.

James Knightley, economist at ING, said the high levels of Government spending called the Chancellor’s austerity measures into question, while Vicky Redwood, chief UK economist at Capital Economics, said Government support would not last.

She said that with so many factors holding back the recovery, she expected the economy to contract by about 0.5 per cent this year as a whole.

Downing Street said that with much of the rest of Europe in recession, it was always going to be difficult for the economy to grow.

The Prime Minister’s official spokesman pointed out that while exports of goods to non-EU countries had grown by 4.4 per cent, exports to the EU had fallen by 3.1 per cent.

The spokesman said: “We cannot be immune from what is happening on our doorstep.”

Shadow Chancellor Ed Balls said the figures showed the Government must change course and take action to promote growth.

“What more evidence can David Cameron and George Osborne need that their policies have failed and that they now need a change of course and a plan B for growth and jobs?” he said. “It’s now clear that this is a recession made in Downing Street by this Government’s failed policies.”