The economy fell back into recession at the start of this year, it was revealed yesterday, leaving George Osborne’s credibility – and his deficit reduction plan – in tatters.
Every sector of the economy disappointed, dragging GDP down 0.2 per cent in the first quarter, following a 0.3 per cent contraction at the end of 2011 and leaving the economy in a technical recession, according to initial estimates from the Office for National Statistics (ONS).
Many economists queried the scale of the slump and the accuracy of the official figures, which contradict more upbeat surveys, but all agreed that the economy was weak.
Output is back down to where it was in the first quarter of 2011, and more than four per cent below its credit crunch peak – a far worse performance than that of competitors like the US and the Eurozone, which have recovered far more of the lost ground than the UK has.
“This is a recession made in Downing Street by David Cameron and George Osborne,” said Labour’s shadow chancellor Ed Balls, who blamed cuts for the double dip.
However, George Osborne argued the painful austerity measures were unavoidable, and will help the economy in the long run.
“Over many years this country built up massive debts, which we are having to pay off. It’s made much harder when so much of the rest of Europe is in recession or heading into it,” he said.
“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.”
Analysts forecast years of slow growth to come. “Economic growth is likely to remain subdued as fiscal austerity, squeezed household incomes and economic weakness in the Eurozone all bear down on the overall pace of recovery in the UK ,” said Scott Corfe from the Centre for Economics and Business Research (CEBR). He added he did not expect annual growth to breach the two per cent mark until after 2016.
They also warned the chancellor would miss his deficit targets by a huge margin, as tax receipts grow at a much slower rate than anticipated. Corfe said: “We expect public borrowing in 2016-17 will stand some £70bn higher than forecast by the Office for Budget Responsibility.”
The decline in GDP was broad based, but led by a three per cent fall in construction sector output – in large part because of government cuts to infrastructure spending.
Manufacturing output fell 0.1 per cent on the quarter and services expanded by a tiny 0.1 per cent, dragged down by a 1.9 per cent fall in finance output.
Meanwhile government and other services rose 0.2 per cent, with NHS output described by the ONS as “a strong point.”