Recession deeper than feared


The double-dip recession is deeper than originally feared as revised figures today showed a sharper decline in the economy in the final quarter of last year.

Gross domestic product (GDP) shrank by 0.4% between October and December, compared with a previous estimate of 0.3%, while the economy contracted by an unchanged 0.3% in the first quarter of this year, the Office for National Statistics (ONS) said.

The figures mean the current recession - defined as two or more quarters of declining GDP in a row - is more severe than first thought.

The impact of the weak economy was underlined by household spending figures, which showed expenditure falling by 0.1% compared with a previous estimate of 0.1% growth.

The downward revision will heap more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery.

And in a further sign that the Chancellor's deficit-busting plans are struggling, Government spending grew at its fastest rate in nearly seven years between January and March, the ONS said.

The 1.9% surge in Government expenditure was driven by higher spending on public administration, health and defence.

Meanwhile, the decline in household expenditure in the first quarter was driven by a fall in spending on financial services and social protection.

The decreases were partially offset by spending on food and drink and recreation and culture.

The construction sector declined by a larger than previously estimated 4.9%, its worst performance since the first quarter of 2009.

Industrial production sector output, which includes manufacturing, was also revised downwards to a fall of 0.5% from a 0.4% decline.

Despite the overall decline in GDP, growth in the powerhouse service sector, which makes up 75% of the economy, was revised upwards from 0.1% to 0.2% in the first quarter.

Economists and business leaders have warned that a technical recession will hit confidence and could cause businesses to rein in spending at a time when they are being encouraged to invest to stimulate growth.

But the current downturn is expected to be nothing like as severe as the previous recession of 2008/09, which spanned more than a year.

Vicky Redwood, chief UK economist at Capital Economics, said the economy is likely to remain in recession in the second quarter, shrinking 0.5% across the whole of 2012.

She said: "Given the negative impact of June's extra bank holiday, GDP is likely to have contracted again in the second quarter.

"Indeed, there are still numerous factors likely to constrain the recovery going forward, not least tight credit conditions."

TUC general secretary Brendan Barber said: "Today's figures lay bare the damage caused by the Government's austerity programme.

"The Chancellor has steered the UK back into a double-dip recession for the first time in 40 years, with falling living standards continuing to depress consumer spending.

"This is not how you secure an economic recovery. Continuing with self-defeating austerity is not only choking off recovery but also risks causing permanent long-term damage to the UK economy.

"A new plan based on investment and jobs is more vital now than ever."

Shadow chancellor Ed Balls said: "Day by day the evidence is growing that David Cameron and George Osborne's economic plan has failed and a change of course is urgently needed.

"The double-dip recession is even deeper than thought and, as a result, borrowing is now going up to pay for the costs of economic failure.

"And with Britain the only G20 country other than Italy in recession, the Government cannot try to blame everybody else for their own mistakes. As we warned, raising taxes and cutting spending too far and too fast would backfire.

"We now need another U-turn from the Chancellor on his failed policies that have pushed Britain into recession. If we're to get the deficit down, we need a more balanced plan and action now to boost jobs and growth.

"The longer the Chancellor clings on to his failing plan, the more long-term damage he risks doing to our economy."

In response to the revised GDP figures, a Downing Street spokeswoman said: "These are challenging times. What is important is that we have a plan in order to try to see the economy recover.

"One of the greatest risks to our economic recovery is the crisis in the eurozone. It is quite timely that the Prime Minister is there at the talks at the European Council sitting alongside European leaders to see if we can set out more steps to deal with the euro crisis and also look at how we can increase growth in Europe in order to provide jobs and the boost the economy requires."