Britain in double-dip recession as growth falls with more trouble ahead

The contraction was driven by a 3 per cent fall in construction output, while Britain’s services sector, which makes up 75 per cent of the economy, grew by just 0.1pc over the period, according to the Office for National Statistics (ONS).

The shock fall in output is a blow for Chancellor George Osborne, who has come under intense pressure over his austerity drive.

In a statement, 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.
“The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”

The figures also fly in the face of several closely-watched surveys that suggested that the UK had narrowly avoided a double-dip.

The Bank of England said last week that it could not rule out “GDP falling for three successive quarters,” because of Britain’s weak construction sector and the extra bank holiday for the Diamond Jubilee celebrations.

The contraction in growth also provides little comfort for Britain’s outlook, with most of the government’s austerity cuts yet to come into effect.

There could be more trouble ahead 
Commenting on the figures, KPMG Chief Economist, Andrew Smith, said: “It’s official, we’re in a double-dip. The 0.2 percent fall in GDP in the first quarter, coming on the back of the 0.3 percent decline at the end of last year, confirms that the UK moved back into technical recession over the winter.

“Looking ahead, output is expected to remain weak in the second quarter and with extra holidays, the Jubilee and the Olympic Games distorting the picture over the summer it will be some time before the underlying picture is clear. But even if activity recovers in the second half, overall this looks like being – at best – another year of weak growth, held back by squeezed real incomes and public spending cuts. Recovery postponed (again).”

Jeremy Cook, chief economist at foreign exchange company, World First, said: “On a day in which a month’s worth of rain is due to fall it is oddly fitting that the UK has slipped back into a technical recession for the first time since the 1970s.

“The much-feared fall in construction (-3.0%) seems to be the main factor and thoughts will now turn to the Bank of England and whether further QE is warranted. Mervyn King has already warned that Q2’s figure is likely to be poor given the extra bank holiday as a result of the Queen’s Jubilee, and we know that business surveys slipped as we went through Q1, so further revisions may exacerbate this negativity.

“Sterling has taken one in the teeth as a result, selling off across the board in the aftermath, although gilt yields have also slipped on the basis that more QE may be forthcoming.”

Paul Jones

Editor of Business Matters, the UKs largest business magazine

Editor of Business Matters, the UKs largest business magazine