Britain's collapse back into recession will drag on until June at the earliest and condemn the country to another lost year, economists have warned.
The prospect of another three months of decline, following Wednesday's shock revelation that the UK has slipped into its first double-dip recession since 1975, will pile pressure on George Osborne, whose policies have so far failed to lift growth.
According to the Office for National Statistics (ONS), the economy shrank 0.2pc in the first quarter of the year and is now roughly 0.2pc smaller than when the Chancellor unveiled his spending review in October 2010.
Gerard Lyons, Standard Chartered's chief economist, said: "The likelihood is that the data will further dent confidence and push the recovery back." Michael Saunders, Citi's UK economist, added that the economy was likely to weaken further.
Under the Bank of England's forecast for another 0.2pc retreat in the second quarter, and following the 0.3pc decline in the final three months of 2011, he calculated that for the 12 months to June the UK would suffer its first annual contraction since the recession ended – of 0.1pc.
"The data make it clear that the economy is very weak," he said.The figures took the City by surprise and rekindled talk of quantitative easing (QE). Chris Crowe at Barclays Capital said: "Weak GDP, combined with persistent inflation, highlights the [Bank's] ongoing policy headache.
Further QE in May seemed unlikely. Today's outturn may give the committee reason to reassess." Poor growth was registered across the economy.
Construction led the decline by falling 3pc, but manufacturing also slid by 0.1pc and business services and finance contracted another 0.1pc. Manufacturing, on which the Government has pinned its recovery hopes, has now failed to deliver any growth in a year.
Economists warned that the weak data could also deter vital business investment. Speaking at the Institute of Directors' annual conference, Nick Clegg urged business leaders not to have a "panicked reaction" to the figures.
However, business groups, such as the British Chambers of Commerce, said the data "paint an unduly pessimistic view of the economy".
Surveys on Wednesday from the CBI, Nationwide Building Society and the British Retail Consortium supported the argument.
A balance of 8pc of manufacturers said orders rose in the three months to April, up from 15pc in January who said orders declined, the CBI Industrial trends survey showed. Levels of optimism also climbed for the first time in a year and were at their highest for two years.
The Nationwide Consumer Confidence Index jumped to a nine-month high. The economy is expected to rebound in the second half of the year after the distortion in the three months June caused by the extra bank holiday for the Queen's Jubilee.
Mr Osborne accepted that the GDP figures were "disappointing" but defended his austerity plans, saying:"The one thing that would make the situation worse would be to abandon our plan and add more debt."
Key points in Britain's financial crisis
Q3 2008
The defining period for the global economy, when the extent of the credit crisis became painfully clear with the collapse of US investment bank Lehman Brothers in September. The crisis escalated, and Britain sank into recession when a 2pc fall in GDP following a 1.3pc contraction in the second quarter.
Q1 2009
This was another defining period for the British economy, as the Bank of England took unprecedented action to tackle the recession. The Bank's Monetary Policy Committee cut interest rates to an historic low of 0.5pc and voted to inject new money into the economy through quantitative easing for the first time. The economy shrank by 1.6pc over the three-month period.
Q3 2009
Britain emerged from recession with 0.2pc growth between July and September, following five successive quarters of economic contraction. The wounds of recession were still fresh however, and until revisions by the ONS at the end of last year, it was thought that the UK was still actually in recession at this point.
Q1 2010
Prospects for the economy were looking slightly brighter following three successive quarters of growth, albeit modest at less than 1pc. The MPC had completed £200bn of QE and decided to pause the asset purchasing programme at that point. The economy grew by 1.1pc in the first quarter of 2010, but consumers were dealing with above target inflation.
Q1 2012
Britain was unable to shrug off austerity, concerns about the eurozone debt crisis, and weak demand. The economy fell back into recession between January and March, with a 0.2pc fall in GDP, signalling Britain's first double-dip recession since 1975.
telegraph.co.uk
The prospect of another three months of decline, following Wednesday's shock revelation that the UK has slipped into its first double-dip recession since 1975, will pile pressure on George Osborne, whose policies have so far failed to lift growth.
According to the Office for National Statistics (ONS), the economy shrank 0.2pc in the first quarter of the year and is now roughly 0.2pc smaller than when the Chancellor unveiled his spending review in October 2010.
Gerard Lyons, Standard Chartered's chief economist, said: "The likelihood is that the data will further dent confidence and push the recovery back." Michael Saunders, Citi's UK economist, added that the economy was likely to weaken further.
Under the Bank of England's forecast for another 0.2pc retreat in the second quarter, and following the 0.3pc decline in the final three months of 2011, he calculated that for the 12 months to June the UK would suffer its first annual contraction since the recession ended – of 0.1pc.
"The data make it clear that the economy is very weak," he said.The figures took the City by surprise and rekindled talk of quantitative easing (QE). Chris Crowe at Barclays Capital said: "Weak GDP, combined with persistent inflation, highlights the [Bank's] ongoing policy headache.
Further QE in May seemed unlikely. Today's outturn may give the committee reason to reassess." Poor growth was registered across the economy.
Construction led the decline by falling 3pc, but manufacturing also slid by 0.1pc and business services and finance contracted another 0.1pc. Manufacturing, on which the Government has pinned its recovery hopes, has now failed to deliver any growth in a year.
Economists warned that the weak data could also deter vital business investment. Speaking at the Institute of Directors' annual conference, Nick Clegg urged business leaders not to have a "panicked reaction" to the figures.
However, business groups, such as the British Chambers of Commerce, said the data "paint an unduly pessimistic view of the economy".
Surveys on Wednesday from the CBI, Nationwide Building Society and the British Retail Consortium supported the argument.
A balance of 8pc of manufacturers said orders rose in the three months to April, up from 15pc in January who said orders declined, the CBI Industrial trends survey showed. Levels of optimism also climbed for the first time in a year and were at their highest for two years.
The Nationwide Consumer Confidence Index jumped to a nine-month high. The economy is expected to rebound in the second half of the year after the distortion in the three months June caused by the extra bank holiday for the Queen's Jubilee.
Mr Osborne accepted that the GDP figures were "disappointing" but defended his austerity plans, saying:"The one thing that would make the situation worse would be to abandon our plan and add more debt."
Key points in Britain's financial crisis
Q3 2008
The defining period for the global economy, when the extent of the credit crisis became painfully clear with the collapse of US investment bank Lehman Brothers in September. The crisis escalated, and Britain sank into recession when a 2pc fall in GDP following a 1.3pc contraction in the second quarter.
Q1 2009
This was another defining period for the British economy, as the Bank of England took unprecedented action to tackle the recession. The Bank's Monetary Policy Committee cut interest rates to an historic low of 0.5pc and voted to inject new money into the economy through quantitative easing for the first time. The economy shrank by 1.6pc over the three-month period.
Q3 2009
Britain emerged from recession with 0.2pc growth between July and September, following five successive quarters of economic contraction. The wounds of recession were still fresh however, and until revisions by the ONS at the end of last year, it was thought that the UK was still actually in recession at this point.
Q1 2010
Prospects for the economy were looking slightly brighter following three successive quarters of growth, albeit modest at less than 1pc. The MPC had completed £200bn of QE and decided to pause the asset purchasing programme at that point. The economy grew by 1.1pc in the first quarter of 2010, but consumers were dealing with above target inflation.
Q1 2012
Britain was unable to shrug off austerity, concerns about the eurozone debt crisis, and weak demand. The economy fell back into recession between January and March, with a 0.2pc fall in GDP, signalling Britain's first double-dip recession since 1975.
telegraph.co.uk
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