Britain has sunk back into recession, its first double-dip downturn since the 1970s, piling pressure on the government to soften its austerity drive.
GDP unexpectedly shrank by 0.2% between January and March, following a 0.3% contraction in the fourth quarter of last year, according to the Office for National Statistics. A technical recession is defined as two or more consecutive quarters of economic decline. The figures wrongfooted City economists, who had expected a return to growth, albeit of a meagre 0.1%.
The shock downturn piles further pressure on the government to step up its efforts to boost the economy, and highlights the challenges it faces in reducing Britain’s debt from record levels. The fall back into recession will also heighten calls for the chancellor to ease up on his deficit-cutting plans. However, George Osborne stuck to his guns on Wednesday morning.
“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,” said the chancellor.
David Cameron admitted at Prime Minister’s Questions that the return to recession was “very, very disappointing”. “There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher,” he said. “It is very difficult recovering from the deepest recession in living memory, accompanied as it was by a debt crisis.”
Hitting back, Ed Balls, the Labour shadow chancellor, said: “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.”
The UK economy contracted by 7.1% during the 2008-2009 recession, which lasted five quarters in a row. Since then recovery has been slow – the weakest in 100 years, weaker than after the Great Depression, the 1970s oil shock or the recessions of the 1980s and 1990s.
The latest decline was caused by falls in industrial and construction output while Britain’s dominant service sector barely grew.
“The UK has sunk back into a recession, if the official first estimate of economic growth in the first quarter is to be believed,” said Chris Williamson, chief economist at Markit. “However, the underlying strength of the economy is probably much more robust than this data suggests. The danger is that this gloomy data delivers 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.”
Britain’s service industries, which make up more than three-quarters of the economy, grew by just 0.1% in the first quarter, after declining by 0.1% in the fourth quarter of last year. Growth was held back by a drop in output in the business services and finance sector.
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