UK back in recession

The decline in gross domestic product (GDP) was driven by the biggest fall in construction output for three years, while the manufacturing sector failed to return to growth, the Office for National Statistics (ONS) says.

Key Points

• UK back in recession says ONS

• Economy contracted 0.2% in first quarter of year

• GDP decline driven by fall in construction output

The preliminary estimate, which may be revised later, means the UK is back in a technical recession – defined as two quarters of decline in a row.

The City had predicted the economy would grow by 0.1% after a 0.3% fall in the previous quarter.

But the current downturn is not expected to be anything like as severe as the previous recession of 2008/09, which spanned more than a year.

Austerity measures

The return to recession will heap more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery.

Economists and business leaders have warned that a technical recession would hit confidence and could cause businesses to rein in spending at a time when they are being encouraged to invest to stimulate growth.

Osborne says: "It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime – even after the recent fall in unemployment.

"But over many years this country built up massive debts, which we are having to pay off."

He adds that the recession in much of the rest of Europe was hampering the recovery, but pledged not to abandon his "credible plan" to cut the budget deficit.

Manufacturing and construction falls

The services sector, which accounts for some three-quarters of the economy, saw growth of 0.1% in the quarter, after a decline of 0.1% in the final quarter of 2011.

Retail sales were boosted last month by panic-buying of petrol amid fears of a tanker drivers' strike, while a heatwave encouraged people to buy summer clothes.

But the industrial production sector declined 0.4%, with manufacturing down 0.1% after a 0.7% decline in the previous quarter.

The continued fall in manufacturing will come as a blow to the Government, which is hoping the sector will lead the recovery.

The construction sector was the biggest contributor to the decline in GDP, with a 3% fall in the quarter, its biggest contraction since the first quarter of 2009.

'Gloomy' figures

But economists have said the ONS's reading of the economy may be too gloomy, as recent industry surveys for both the manufacturing and construction sectors have pointed to growth.

Chris Williamson, chief economist at Markit, says: "The underlying strength of the economy is probably much more robust than these data suggest.

"The danger is that these gloomy data deliver 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."