UK Economy: Pressure On George Osborne Increases After Double Dip Recession

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DOUBLE DIP
Pressure on the government's economic strategy intensified tonight after shock figures showed Britain's faltering economy was back in recession. | PA/Alamy

Pressure on the government's economic strategy intensified tonight after shock figures showed Britain's faltering economy was back in recession.

Prime Minister David Cameron said the estimated 0.2% 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% the previous quarter, has caused the UK's first double-dip recession since the 1970s.

Experts said the first-quarter figure, which compared with City forecasts for growth of 0.1%, painted an unduly pessimistic view of the economy and there was a danger that the UK's recession tag could damage confidence and prompt firms to rein in spending at a time when growth is needed.

Labour leader Ed Miliband told the House of Commons that the figures were proof that the Government's plan has failed, describing the downturn as "a recession made by the Prime Minister and the Chancellor in Downing Street".

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 7%.

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.

Experts at the Ernst & Young Item Club went further and said their reaction to the headline GDP figure was "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% in the quarter after a decline of 0.1% 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%, with manufacturing down 0.1% after a 0.7% decline in the previous quarter. 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 3% decline in the quarter, its biggest contraction since the first quarter of 2009, although the findings contradict recent industry surveys for both the manufacturing and construction sectors.

Bank of England policymakers have also said recent results from the construction sector were "perplexing".

Chris Williamson, chief economist at Markit, said: "The underlying strength of the economy is probably much more robust than these data suggest.

"The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession."

Shadow Chancellor Ed Balls said on Wednesday: "This is a recession made in Downing Street by David Cameron and George Osborne. It is their responsibility."

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