Cameron sticks with austerity despite ‘double-dip’ recession

Prime Minister David Cameron said the 0.2 per cent quarterly decline in GDP was “very, very disappointing” but insisted there will be no change to the coalition Government’s programme of austerity and deficit reduction.

A slide in construction output and a stagnant services sector were blamed for the surprise slump which, after a fall of 0.3 per cent the previous quarter, has caused the UK’s first double-dip recession since the 1970s.

Deputy Prime Minister Nick Clegg urged business leaders not to panic at the figures.

Addressing the Institute of Directors’ annual convention just 30 minutes after the figures were released, the MP for Sheffield Hallam said: “We need to step away from panicked reactions, the inevitable calls for the Government to lurch this way or that.

“We are pulling the country back from the brink by repairing the public finances.”

However, Ed Balls, Labour’s Shadow Chancellor and Morley and Outwood MP, said: “David Cameron and George Osborne complacently boasted their austerity plan had taken our economy out of the danger zone, but their failed policies have plunged us back into recession.

“We consistently warned that their austerity plan was self-defeating and that cutting spending and raising taxes too far and too fast would badly backfire.”

Economists had pencilled in growth of 0.1 per cent in the first quarter and warned that the recession tag could damage confidence and prompt firms to rein in spending at a time when growth is needed.

Mr Cameron said: “These are very, very disappointing figures. I don’t seek to excuse them, I don’t seek to try to explain them away.

“Let me be absolutely clear: there is no complacency at all in this Government in dealing with what is a very tough situation which frankly has just got tougher. It is very difficult recovering from the deepest recession in living memory, accompanied as it was by a debt crisis.”

Sterling fell sharply in the wake of the figures which have opened the door to another round of money printing measures by the Bank of England.

Its governor, Sir Mervyn King, has already warned that the economy might “zig-zag” in coming months, with Diamond Jubilee celebrations and the Olympics also set to distort the figures for the second and third quarters.

The current downturn is expected to be nothing like as severe as the previous recession of 2008-09, when the economy contracted by more than seven per cent.

The ONS’s first estimate is compiled before more than half of the data has been gathered and some economists are hopeful that figure will be revised higher in coming months.

The Ernst & Young Item Club described its reaction to the headline GDP figure as “one of disbelief”, particularly after a run of strong industry surveys from the manufacturing and services sectors.

Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: “The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the data.”

The services sector, which accounts for three-quarters of the economy, saw growth of 0.1 per cent in the quarter after a decline of 0.1 per cent in the final quarter of 2011.

Retail sales were boosted last month by panic-buying of petrol amid fears of a tanker drivers’ strike and a heatwave that encouraged people to buy summer clothes, but the industrial production sector declined 0.4 per cent, with manufacturing down 0.1 per cent.

The continued fall in manufacturing will come as a blow to the Government which is hoping the sector will lead the recovery.

The construction sector saw a three per cent decline in the quarter, its biggest contraction since the first quarter of 2009.

The Institute of Directors said the figures had come as “something of a surprise”.