UK Double-Dip Recession Deeper Than Feared

The UK double-dip recession is deeper than originally thought after revised figures showed a sharper decline in economic output during the first quarter of the year.

The Office for National Statistics ( ONS ) has revised downwards its first estimate of the fall in gross domestic product (GDP) of 0.2% during the first three months of the year to 0.3%.

It blamed weaker construction output for the poorer economic situation.

After a 0.2% decline in the final quarter of 2011, the new estimate confirms that the UK has entered a technical recession - two consecutive quarters of negative growth.

Ross Walker, RBS UK economist, told Sky News that if the construction sector, which saw a near 5% decline in output, was stripped out of the data the picture was not so bad.

But he warned: "The economy is still basically fairly flat."

Mr Walker, a member of the Sky News Money Panel, said the part of the economy that could drive a recovery, the corporate sector, was "sitting on cash" rather than making investments.

"A resolution of the euro crisis would help get business activity going again," he added. 

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.

It will also dash hopes that the figures could be revised upwards, possibly into positive territory, when a third estimate is released next month.

Sky News business correspondent Alistair Bunkall said: "Without doubt, this small revision and confirmation that the UK is in a double dip recession will add impetus to the Labour Party's accusation that the Government's strategy for the economy is the wrong one.

"However I don't think that in itself it is going to change the Government's resolve.

"But it will give them food for thought, equally so the Bank of England, which must now reconsider, in even stronger terms, a further round of Quantitative Easing."

The second estimate provides data for the expenditure side of the economy for the first time and revealed a slowdown in household spending, which increased by 0.1% in the first quarter, compared to 0.4% growth in the final quarter of last year.

Household spending declined for three quarters in a row last year and has been hit by high inflation, sluggish wage growth and soaring unemployment .

Unions and the Labour party used the revised figures to attack the Mr Osborne's economic policy.

TUC general secretary Brendan Barber said: "The Government is taking our economy in completely the wrong direction.

"Despite ministers' efforts to blame Europe for everything the truth is many of our problems are home grown, with consumer spending and construction both struggling under the weight of the Government's austerity programme."

Shadow chancellor Ed Balls added: "What more evidence can David Cameron and George Osborne need that their policies have failed and that they now need a change of course and a plan B for growth and jobs?"

But Chloe Smith, economic secretary to the Treasury defended the Government's strategy under "very challenging circumstances".

"We have confirmation from the IMF and the OECD that our path is the right one for the present," she told Sky News.

The latest figures also showed Government spending surged 1.6% between January and March, the biggest rise since the first quarter of 2008, driven by spending on health and defence.

James Knightley, economist at ING, said the high levels of Government spending called the Chancellor's austerity measures into question, while Vicky Redwood, chief UK economist at Capital Economics, said Government support would not last.

She said: "Of course, the GDP figures could yet be revised back up again in the future.

"But with so many factors holding back the recovery, we still expect the economy to contract by about 0.5% this year as a whole."

Earlier in the week the International Monetary Fund warned that the eurozone crisis threatened to derail the UK's economic recovery and urged the Government to take action to boost growth and reduce unemployment.

The global financial watchdog recommended that the Government should find money to invest in infrastructure and even consider a temporary cut in VAT to bolster consumer demand.

The UK's position is in stark contrast to that of Germany.

Revised GDP figures for Europe's largest economy confirmed that Germany's economy grew by 0.5% in the first quarter of 2012.