Public sector ‘marked decline’ blamed for double-dip recession

Official economic figures released today showed the UK economy has entered a double-dip recession, with Gross Domestic Product falling by 0.2% in the first three months of the year - following a 0.3% shrinkage in the final quarter of 2011.

According to the Office for National Statistics, a 3% fall in construction sector output - led by a marked decline in public sector and infrastructure spending – contributed significantly to the poor results.

The worsening economic news will put pressure on David Cameron’s embattled coalition government, whose popularity has plummeted since last month’s Budget.

When George Osborne made his Budget announcement on 21 March, the Treasury had predicted economic growth at 0.3% for the first quarter of 2012, based on the independent Office for Budget Responsibility’s forecast.

Since taking the reins at the Treasury, the economy under Mr Osborne's watch has grown 0.4% over eight quarters as against growth calculations of 4.3% contained in the deficit reduction plan set out at the emergency budget of June 2010.

Responding to the news, Mr Osborne today said: 'The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing.’

Figures released yesterday showed the government met its borrowing target of £126bn for the financial year to March - £11bn lower than at the end of last financial year.

'The double dip appears to have been caused in large part by falling public investment in construction,' said New Local Government Network's director Simon Parker.

'The need to reduce the deficit means that ministers are fighting the recession with both hands tied behind their back. But that isn't true of local government.

'Councils can take an active role in their local economies as social venture capitalists - pooling their borrowing power into revolving infrastructure funds that deliver commercial returns. We want to see local authorities making smart and profitable investments in everything from new transport schemes to equity stakes in new businesses.

'This is particularly important outside the south east - less successful regions often have the most potential for rapid growth. A double dip simply restates the case for double devolution - giving councils more control in areas such as transport and skills is critical,' he added.