Britain's recession deeper than feared

By Rachel Cooper, and agencies

Revised figures from the Office for National Statistics showed that gross domestic product (GDP) shrank by 0.4pc between October and December, compared with a previous estimate of 0.3pc, while the economy contracted by an unchanged 0.3pc in the first quarter of the year.

The figures mean the current recession - defined as two or more quarters of declining GDP in a row - is more severe than first thought and highlight the weakness in the economy, which has struggled to recover from the financial crisis.

Declines in construction and industrial output outweighed the biggest rise in government spending in almost seven years, which was driven higher by expenditure on public administration, health and defence.

Government spending rose by 1.9pc, construction, meanwhile, fell by 4.9pc - its steepest decline in three years, and industrial output fell by 0.5pc. The services sector grew by 0.2pc.

Underlining the weak economy was a fall in household spending figures, which showed expenditure falling by 0.1pc compared with a previous estimate of 0.1pc growth. Real household disposable income slid by 0.9pc and the household saving ratio fell to its lowest in a year at 6.4pc. 

Fuelling the decline in household expenditure in the first quarter was a fall in spending on financial services and social protection. The decreases were partially offset by spending on food and drink, and recreation and culture.

A deeper-than-feared recession will put more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery.

The Government had been counting on a private-sector led recovery to drive growth while it presses ahead with austerity measures aimed at eliminating a budget deficit that is still around 8pc of GDP.

However, those hopes have been quashed by the worsening crisis in the euro zone - Britain's biggest trading partner - and signs of a slowdown in the United States and emerging economies.

“The recession probably continued in the second quarter, and there are numerous reasons why growth is likely to remain weak,” said Philip Rush, an economist at Nomura. “That complicates the government’s fiscal consolidation programme, and they may need to come out with additional measures.”

David Tinsley of BNP Paribas added: "It doesn't look very different from what we knew. It doesn't look as if the details are too encouraging."

"I don't think it is all doom and gloom. The underlying position in final demand is a little bit stronger than the GDP figures would suggest," he said.

"The survey figures suggest there is still some forward momentum. But overall growth will look very close to zero this year."