UK recession is deeper than feared

George OsborneThe double-dip recession is deeper than originally feared after revised figures showed a sharper decline in the economy in the first three months of the year.

Gross domestic product (GDP) shrank by 0.3% between January and March, said the Office for National Statistics (ONS), down from a first estimate of 0.2%.
The change was driven by a worse-than-previously estimated performance from the nation's builders, as construction output fell 4.8%, down from a drop of 3%, the steepest decline in 11 years.

The second estimate, which could be revised later, means the UK is in a technical recession - defined as two quarters of decline in a row - following a 0.2% fall in the final three months of 2011.

The downward revision heaps more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery. It also dashes hopes the figures could be revised upwards, possibly into positive territory, after some economists cast doubt on their accuracy.

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. But Government spending surged 1.6%, the biggest rise since the first quarter of 2008, driven by spending on health and defence.

The services sector, which accounts for some three-quarters of the economy, saw unrevised growth of 0.1%, after a decline of 0.1% between October and December last year. The industrial production sector declined at an unrevised 0.4%, with manufacturing flat after a 0.7% decline in the previous 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.
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