The economy has contracted for the first time in a decade, show figures revealed yesterday that will tarnish Gordon Brown's claim to have averted a return to boom and bust.
Although GDP growth in the final three months of 2001 was unchanged at zero, government statisticians have revised their estimate of slight growth down to a minuscule fall of some £3m.
This is the first contraction since spring 1992. Growth for 2001 as a whole was cut from 2.4 to 2.2 per cent, putting it in line with the Treasury's forecast.
The figures, which coincided with separate surveys showing that consumer confidence and retail spending had fallen, could delay the timing of the first hike in interest rates, analysts said.
"The final quarter of last year marked a low point in the cycle," said Ross Walker of Royal Bank of Scotland. "But recovery in the first half of the year could be rather lethargic."
A poll by Bloomberg shows that 17 out of 34 economists expect a rate hike in August or later, with nine plumping for a May hike.
The figures disappointed City hopes of a revision to growth of 0.1 or even 0.2 per cent following strong business investment figures published on Tuesday.
The National Statistics office said a vast increase in government spending and investment failed to offset a sharp downward revision to growth in the services sector.
Whitehall spending growth was revised up to 1.4 from 0.2 per cent, while government investment rose 17 per cent over 2001 – the biggest increase since 1990.
But growth in the services sector, which was first pencilled in at 0.9 per cent, was cut to 0.5 per cent because of a sharp slowdown in telecoms, computing and business services.
The report contained faint signs of an unwinding in the imbalance between booming consumer demand and the recession-hit industrial and export economy. But there was a strong rebound in investment in machinery and equipment, especially telecoms, while consumers' spending was revised down to 0.9 from 1.2 per cent.
The figures came as separate surveys indicated that the consumer economy, which has so far kept the UK out of recession, might be faltering.
Confidence slipped for a second month in a row in March as public perceptions over the state of the economy declined.
The index, produced by the research firm Martin Hamblin, showed consumers were less optimistic about the economy, their own finances and the likelihood of making a major purchase.
Meanwhile, shopping centres suffered a marked slump in visitor numbers over the last two weeks, according to an index from the monitoring firm FootFall. Visitor numbers to Britain's top 50 retail outlets dropped 5.4 per cent in the week ending March 16 and a further 0.5 per cent last week.
These reports jarred with other surveys and anecdotal evidence that point to robust consumer spending, heavy personal borrowing and a buoyant property market.
The gloom was offset by figures showing consumers' appetite for debt had not diminished. Credit card, overdraft and loan borrowing by individuals increased by a record £1.1bn last month, the British Bankers' Association said.
Although there was a slight fall in mortgage lending, to £3.88bn from £4.04bn, the number of new mortgage approvals surged by 18 per cent to more than 184,000.
BBA chief executive Ian Mullen said: "We expect stronger lending in the coming months, as the volume of loans approved for house purchase was noticeably higher."Reuse content