Britain's GDP growth rate is revised downwards

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Double-dip recession fears continued to stalk the UK today after more grim updates showed an economy stagnating and a consumer shorn of confidence.

Economic growth in the first two quarters of the year was weaker than first thought, the Office for National Statistics (ONS) said, while retailer Mothercare and airline Flybe issued profit warnings.

The ONS revealed the country was in a much worse position at the start of the recovery than previously assumed as the 2008-09 recession was much deeper than originally feared.

The troubling data will pile pressure on the Bank of England which will reveal the outcome of its policy meeting tomorrow, in particular whether to roll out further emergency measures to jump-start the flagging recovery.

Some economists warned a renewed recession was now more likely but the Treasury said it would not alter its deficit-busting austerity measures despite the bleaker picture.

However, there was some respite as purchasing managers index (PMI) data showed the services sector rebounded in September and business investment increased 11.6% in the second quarter to £30.6 billion.

Howard Archer, chief UK and European economist at IHS Global Insight, said "the risk of renewed recession has clearly risen recently".

He added: "The adjustments to the GDP history do not change the current situation which is of an economy struggling for growth in the face of major domestic and international headwinds."

Gross domestic product grew 0.1% between April and June, compared with an earlier estimate of 0.2%, while the first quarter was downgraded to 0.4% from 0.5%, the ONS said.

Mothercare, which has 353 stores in the UK, said a downturn in consumer confidence following the riots in August meant the outlook has "materially worsened" while Flybe noted a significant slowdown in September.

The data comes amid increasing fears over the future of the eurozone as Greece fights to stave off a debt default, Italy's public finances come under pressure and major European banks falter.

Most economists believe it is only a matter of time before the Bank's Monetary Policy Committee (MPC) increases its £200 billion quantitative easing programme to stimulate UK growth.

Scott Corfe, senior economist at think-tank Cebr, said the GDP figures "only strengthen the case for further quantitative easing from the Bank of England to prop up the economy over the coming quarters". He expects an additional £50 billion of asset purchases to be announced before the end of the year.

Manufacturing, service and trade surveys have recently pointed toward a slowdown or possible contraction in growth for the third quarter. Official GDP estimates for July to September will be released on November 1.

However, PMI services data for September, released today, showed a boost to new orders and stronger demand in the dominant sector.

Chancellor George Osborne is under increasing pressure to reconsider his strict package of spending cuts amid signs the economy is heading to the rocks.

But a spokesman for the Treasury said today: "The economy is recovering from a recession we now know was deeper than we thought and the deepest of any major economy except Japan.

"Add to this the high levels of debt, particularly in the financial sector, which has been a drag on growth for the last six quarters and it is clear that the recovery was always going to be difficult."

The revisions to GDP follow an annual rebalancing of accounts known as the Blue Book exercise which involves changes to methodology.

The Blue Book exercise means revised figures are not directly comparable with previous estimates, the ONS said.

A number of seasonal factors, such as the royal wedding and the unusually hot spring, were previously blamed for clouding the picture in the second quarter.

The near-stagnant growth in the second quarter was driven by a 0.8% drop in consumer spending, the biggest drop in more than two years, and a 1.2% decline in the production industries.

The contraction in the production industries sped up in the second quarter, falling 1.2% compared with 0.1% the previous quarter.

There were also steep declines in mining and quarrying which fell by 6.6% in the period, compared with a 4.9% fall in the previous quarter.

Manufacturers saw their sector grow at a sluggish 0.2%, compared with a 1.1% rise in the first quarter, while the powerhouse services sector, which makes up 76% of the overall GDP, grew at just 0.2%.

Meanwhile, the revisions revealed the UK suffered a much deeper recession in 2008 than previously thought.

The UK economy shrank 1.3%, 2% and 2.3% in the final three quarters of 2008, compared with previous estimates of 0.3%, 0.9% and 2.1%.

However, the emergence from recession in 2009 was slightly better than first estimated, with declines of 2.2% and 0.8% in the first two quarters being revised up to 1.6% and 0.2%, and the third quarter now showing 0.2% growth, compared with a 0.3% fall.

The number of businesses in the UK declined by 20,000 in the year to March 2011, the ONS added.

Shadow chancellor Ed Balls said the figures showed the economy had been stagnating since the autumn - well before the current eurozone crisis.

"They should set alarm bells ringing in Downing Street and the Treasury," he said.

"David Cameron and George Osborne urgently need to realise that spending cuts and tax rises which go too far and too fast have hit consumer confidence, killed the recovery and pushed up unemployment."