George Osborne was under intense pressure to change course last night after worse-than-expected official figures showed the economy shrank by 0.7 per cent between April and June.
Liberal Democrats called for a "Plan A plus" to stimulate growth and one of the party's peers called for the Chancellor to be sacked. There was little attempt to disguise the Conservatives' gloom over statistics showing that gross domestic product fell for a third consecutive quarter, plunging Britain into the longest double-dip recession for more than 50 years.
Vince Cable, the Business Secretary, said: "Budget discipline is a necessary but not a sufficient condition for recovery and for rebalancing the economy. We also need policies to stimulate long-term growth."
Mr Cable declined to endorse the call by his close ally Lord Oakeshott for Mr Osborne, pictured, to be ousted from the Treasury. The peer told BBC Radio 4: "George Osborne has got no business experience. He is doing surprisingly well for a Chancellor on work experience. But really in a torrid time like this, I think we do need absolutely the best people available."
David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said: "This is the nail in the coffin of the Chancellor's credibility. The part-time Chancellor and his advisers should be put out to pasture. This is the most inept Chancellor for 50 years."
Ed Balls, the shadow Chancellor, said: "If these figures don't make the Chancellor wake up and change course, then I don't know what will. We need a Plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity."
David Cameron, whose aides dismissed speculation that Mr Osborne might be moved, admitted the figures were disappointing. "They show the extent of the economic difficulties that we're grappling with, not least the situation right across the eurozone where our neighbours are also really struggling," he said.
Mr Osborne denied his role as a Downing Street strategist distracted him from his main aim, insisting he had only "one job". He said: "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."
The decline marked the biggest quarterly fall since 2009. Experts believe the Diamond Jubilee celebrations accounted for 0.5 per cent of that.
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