Double-dip: Britain back in recession

The UK economy shrunk by 0.2% in the first quarter of 2012, meaning the much-feared double-dip recession is now a reality.

The contraction for January to March, confirmed by the Office for National Statistics this morning, followed 0.3% of negative GDP growth in the final quarter of last year.

As a result Britain is once again officially in recession, defined by two technical quarters of economic contraction.

"It's made much harder when so much of the rest of Europe is in recession or heading into it," chancellor George Osborne said today.

Shadow chancellor Ed Balls said: “David Cameron and George Osborne complacently boasted their austerity plan had taken our economy out of the danger zone, but their failed policies have plunged us back into recession.

“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. Their economic credibility is now in tatters."

The data is much worse than feared by analysts, who had forecast positive growth of around 0.2%.

Weak construction output has been blamed for the poorly performing economy, with the official figures showing the most substantial fall in construction output for three years.

There was a fall in output from large business services and the finance sector.

The service sector as a while rose by just 0.1% in the first quarter.

"The composition of growth is a blow for the chancellor who called for the economic recovery to be led by a ‘march of the makers’," said Tony Dolphin, IPPR’s senior economist.

"The recession is the result of large drops in manufacturing and construction output. While – as the chancellor has said – the crisis in the euro zone explains some of the weakness in manufacturing, the fall in construction is wholly a domestic problem, reflecting inadequate investment in housing and deep cuts in government capital spending."

TUC general secretary Brendan Barber: "This is worse than expected. There has been no growth over the last year, and the economy is 0.5 per cent smaller than six months ago.

“Austerity isn’t working. The government should look across the Atlantic and follow President Obama’s alternative that has reduced unemployment and brought growth back to the USA.”

The figures could not come at a worse time for the government, with David Cameron preparing to face Ed Miliband at PMQs today.

With Downing Street on the back foot over the Jeremy Hunt row and Mr Osborne's credibility at an all-time low after a badly-received Budget, analysts are expecting a disastrous series of local election results when voters go to the polls next week.