David Cameron disappointed at Britain's return to recession

 

Britain's return to recession is "very, very disappointing", Prime Minister David Cameron said today, but he insisted the Government will stick to its programme of austerity and deficit reduction.

The Office for National Statistics today announced the 0.2% decline in gross domestic product (GDP) in the first quarter of the year which, after a fall of 0.3% the previous quarter, has triggered the UK's first double-dip recession since the 1970s.

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".

"Over the last 18 months since his catastrophic spending review, our economy has shrunk," Mr Miliband said at Prime Minister's Questions.

"The reality is that it is families and businesses who are paying the price for his arrogance and complacency."

Mr Cameron responded: "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."

He added: "We have got to rebalance our economy, we need a bigger private sector, we need more exports, more investment.

"This is painstaking, difficult work but we will stick to our plans, stick with low interest rates and do everything we can to boost growth, competitiveness and jobs in our country."

A slide in construction output and a stagnant services sector were being blamed today for the decline in GDP.

Responding to the preliminary estimate from the Office for National Statistics (ONS), Chancellor George Osborne admitted the recovery was taking longer than hoped but said he would not change course on his austerity drive.

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 is 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.

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 the Diamond Jubilee 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, which spanned more than a year.

Mr Osborne said: "It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime - even after the recent fall in unemployment.

"But over many years this country built up massive debts, which we are having to pay off."

He added that the recession in much of the rest of Europe was hampering the recovery, but pledged not to abandon his "credible plan" to cut the budget deficit.

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

The services sector, which accounts for some 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 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: "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.

"David Cameron and George Osborne arrogantly and complacently dismissed people who warned of the risk of a double-dip recession and the country is now paying a very heavy price. Their economic credibility is now in tatters."

Mr Balls said the UK economy had now shrunk by 0.2% in the 18 months since Mr Osborne's spending review, which laid out an austerity package of spending cuts.

And he added: "The Chancellor needs to explain why America, which has taken a much more balanced approach with a jobs plan to boost growth, has more than recovered all the output it lost in the global recession while our economy is shrinking again.

"The price of this recession is billions more borrowing to pay for economic failure. The Government's pledge to balance the books by 2015 is now in tatters and the next Labour government will have to clear up George Osborne's economic mess.

"The longer this out of touch and incompetent Government sticks with these failed policies, the more damage will be done."

Deputy Prime Minister Nick Clegg admitted the GDP figures were "disappointing", but insisted the basic "building blocks" of the Government's strategy were right.

"These are not overnight projects, we have undergone a profound trauma in the economy," Mr Clegg told the Institute of Directors (IoD) conference in London.

He said: "Fixing the damage takes time and commitment. Our task has been nothing less than rescue, repair and reform. There are no shortcuts."

Graeme Leach, chief economist at the Institute of Directors, said: "Although the fall in GDP in the first quarter was relatively small, the impact on the economy will be much greater because of the knock to consumer and business confidence.

"Confidence has already taken a battering from the euro crisis and today's news means companies are less likely to boost investment and recruitment this year.

"But even though we are back in recession, the IoD does not believe we should slow down on deficit reduction."

David Kern, chief economist at the British Chambers of Commerce (BCC), said: "The figure is disappointing, and paints an unduly pessimistic picture of the state of the economy.

"Business surveys, including the BCC's Quarterly Economic Survey, have shown a more positive picture, and we believe these give a more accurate indication of the underlying trends in the economy. We think it is likely that the preliminary estimate will be revised upwards when more information is available.

"But it is clear that economic growth in the UK remains much too low. We need to see a reallocation of priorities within Plan A that will bolster business growth. That means reducing regulation, encouraging exports and improving infrastructure."

Brian Berry, chief executive of the Federation of Master Builders, said: "The Government will find it very difficult to get sustained growth in the economy while the construction industry remains depressed.

"Construction is essential to the wellbeing of the wider economy because of the variety and quantity of jobs its creates, from apprentice bricklayers to world-leading architects. Every £1 spent on construction generates £2.84 in the wider economy, which makes it the best investment the Government can make to get Britain back on its feet."

Chief executive of the Child Poverty Action Group Alison Garnham said: "The economy may now be back in a technical recession but the truth is that, for many families with children, the recession had never gone away as they have endured a miserable few years coping with rising living costs, job losses, wage freezes and cuts in social protection.

"In a recession, unemployment rises, so rather than spuriously blaming rising welfare bills on dependency, ministers have to do more to create jobs, help parents move into work by providing better childcare, and reinstate the tax credits taken away this month from many low-paid couples."

PA

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