Osborne blames others as UK slumps into longest recession

Dire construction and manufacturing output drove a 0.7 per cent decline between April and June – the biggest drop in GDP since the height of the financial crisis three years ago. Forecasters had expected a 0.2 per cent fall.

The damning results, the third quarter in a row that the economy has contracted, heaped pressure on Chancellor George Osborne to ease his austerity measures.

But the Chancellor hit back, saying: “We’re dealing with our debts at home and the debt crisis abroad.

“We’ve made progress over the last two years in cutting the deficit by 25 per cent and businesses have created over 800,000 new jobs.

“But given what’s happening in the world, we need a relentless focus on the economy and recent announcements on infrastructure and lending show that’s exactly what we’re doing.”

An extra bank holiday for the Queen’s Diamond Jubilee and record rainfall both played a significant part in the biggest slump since the height of the financial crisis three years ago, according to the Office for National Statistics (ONS).

But economists said the figures were a symptom of underlying weakness, with one branding the second quarter of 2012 a “disaster” while Labour and the unions seized on the figures as fresh evidence that the painful austerity measures are choking off the recovery.

Shadow Chancellor Ed Balls said: “With Britain just one of two G20 countries in a double-dip recession and borrowing now going up as a result, it is clear that this Government’s plan has failed.

The Morley and Outwood MP added: “If these figures don’t make the Chancellor wake up and change course, then I don’t know what will.”

TUC general secretary Brendan Barber added to the criticism. “The Government’s austerity strategy is failing so spectacularly that it has wiped out the recovery completely,” he said.

The UK’s economy is 0.3 per cent smaller than when the coalition came to power in the second quarter of 2010, the ONS figures showed, and is still 4.5 per cent lower than its 2008 peak.

Of particular concern was a 5.2 per cent decline in the construction sector, while manufacturing also suffered hefty falls as its main export markets were hit by the eurozone debt crisis.

The pound fell against the euro as the data increased chances that the Bank of England will pump more emergency money into the economy or drop interest rates further.

Bank of England governor Sir Mervyn King has warned the economy will “zig-zag” this year as special events such as the Jubilee and the Olympics create erratic trends.

And a CBI survey seemed to contradict the ONS figures yesterday as it showed that output in the manufacturing sector was steady in the three months to July. CBI director-general John Cridland said: “When I talk to businesses on the ground, however, the overwhelming view is that right now the economy is flat rather than negative, and there is potential for Britain to get back into growth later in the year.”

There are hopes the UK’s economy will finally pull out of its double-dip recession in the current quarter, helped by the Olympics, which will boost tourism and help bring about a feel-good factor. But growth is expected to be lacklustre for months to come.

The International Monetary Fund has reduced its UK forecast for 2012 to just 0.2 per cent, and it expects growth of 1.4 per cent the following year, which is significantly weaker than normal.

Comment: Page 12.