Blow for George Osborne as recession is deeper than first feared

The double-dip recession is deeper than originally feared as revised figures today showed a sharper decline in the economy in the final quarter of last year. Gross domestic product (GDP) shrank by 0.4% between October and December, compared with a previous estimate of 0.3%, while the economy contracted by an unchanged 0.3% in the first quarter of this year, the Office for National Statistics (ONS) said. The figures mean the current recession - defined as two or more quarters of declining GDP in a row - is more severe than first thought. The impact of the weak economy was underlined by household spending figures, which showed expenditure falling by 0.1% compared with a previous estimate of 0.1% growth. The downward revision will heap more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery. And in a further sign that the Chancellor's deficit-busting plans are struggling, Government spending grew at its fastest rate in nearly seven years between January and March, the ONS said. The 1.9% surge in Government expenditure was driven by higher spending on public administration, health and defence. Meanwhile, the decline in household expenditure in the first quarter was driven by 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. The construction sector declined by a larger than previously estimated 4.9%, its worst performance since the first quarter of 2009. Industrial production sector output, which includes manufacturing, was also revised downwards to a fall of 0.5% from a 0.4% decline. Despite the overall decline in GDP, growth in the powerhouse service sector, which makes up 75% of the economy, was revised upwards from 0.1% to 0.2% in the first quarter. Economists and business leaders have warned that a technical recession will hit confidence and could cause businesses to rein in spending at a time when they are being encouraged to invest to stimulate growth. But the current downturn is expected to be nothing like as severe as the previous recession of 2008/09, which spanned more than a year. Vicky Redwood, chief UK economist at Capital Economics, said the economy is likely to remain in recession in the second quarter, shrinking 0.5% across the whole of 2012. She said: "Given the negative impact of June's extra bank holiday, GDP is likely to have contracted again in the second quarter. "Indeed, there are still numerous factors likely to constrain the recovery going forward, not least tight credit conditions." Courtesy of London Evening Standard