The economy has fallen back into recession after GDP contracted 0.2% in the first quarter of the year, according to the latest Office of National Statistics (ONS) figures.
This follows a 0.3% decline in the final quarter of 2011 and means that the UK is now officially in recession again - sending the country into its first double-dip since the 1970s.
The latest "shock" results will add pressure on the government to soften its austerity drive, however Chancellor George Osborne said this morning that we must maintain the cuts despite slipping back into recession.
He said: "It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis 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 economic slump was led by a 3% decline in in construction output - the biggest fall for three years. The ONS added that a fall in public sector investment had contributed to the large fall in the construction sector.
In addition, output of the production industries decreased by 0.4% and output of the service sector increased by 0.1%.
KPMG chief economist, Andrew Smith commented on the data: “Output remains broadly unchanged from its level in the third quarter of 2010 and, four years on from its pre-recession peak is still some 4% down– making this slump longer than the 1930s Depression.”
Looking forward, he added: “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).”
Richard Murphy said in his blog he suspects during the course of this year we will come out of recession, “but only just”. He added that there is only one way to restore balance in our economy: “for the government to spend now on the creation of new infrastructure projects, new green energy projects, on the backlog of repairs that need to be undertaken in our public sector properties, in providing services that people need, and in investing with business in our future in sectors such as non-carbon energy.”
The 0.2% contraction in GDP is an early estimate, compiled using 40% of the data gathered, and is subject to at least two further revisions in the coming months.
According to David Ingall, of Yorkshire-based accountants JWPCreers, “The 0.2% shrinkage is only a statistic. We have to keep on going – there is no choice.”
The impact of the figure is more to do with its impact on business and conumer confidence, he explained. “One major problem is our neighbours across the channel and their refusal to accept that they have to resolve the issues surrounding their currency.
“The imbalance of trade within the Euro, with Germany taking advantage of the discounted Euro exchange rate but refusing to transfer that benefit throughout the eurozone, means that there is an inherent instability within the group. Until that issue is tackled there can be no confidence as there will always be the fear that there will be another crisis.”
For further debate on the causes, effects and progress of the economic downturn, visit our Economy discussion group.