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Category : Business

Contraction of 0.3% raises the pressure on George Osborne to explain how the coalition plans to drag the country out of recession

Britain’s economy contracted by 0.3% in the first three months of the year, faster than previously thought, increasing the pressure on George Osborne to explain how the coalition plans to drag the country out of recession.

The Office for National Statistics said the downturn in the construction sector between January and March was even more pronounced than it had initially projected, pushing its overall measure of GDP growth down to -0.3%, from a first estimate of -0.2%.

The downturn was of the same magnitude as the contraction in the final quarter of 2011, undermining hopes that the economy was moving towards recovery.

Deputy Prime Minister Nick Clegg suggested earlier this week that the coalition plans to expand its policy of credit easing, using government guarantees to kickstart spending on infrastructure and housing to boost the economy.

According to the ONS, construction output declined by 4.8% in the first three months of the year, after a 0.2% decline in the fourth quarter of 2011, helping to explain the government’s change of heart about pumping fresh cash into building projects.

“Over the past eighteen months, the economy has experienced a mild contraction in output. This reflects global economic headwinds as well as domestic economic conditions such as the impact of continuing high rates of inflation in the UK,” the ONS said.

Manufacturing, which the chancellor had hoped would lead the economy towards recovery in a “march of the makers”, recorded no growth at all in the first quarter, after a decline of 0.7% at the end of last year.

Business services and finance – including the banking sector, which has been hit by the mounting crisis in the eurozone – also contracted, by 0.3%.

With the extra bank holiday for the Queen’s Diamond Jubilee expected to depress economic output in the second quarter of the year, as workers down tools and fire up their barbecues, analysts believe it will be autumn at the earliest before the UK emerges from recession.

However, as Sir Mervyn King, the governor of the Bank of England, has stressed, events in the eurozone, where leaders are battling to contain the impact of the political paralysis in Greece, present a major risk to the outlook in the weeks ahead.

Howard Archer, of consultancy IHS Global Insight, described Thursday’s news as, “very disappointing”.

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