UK economy grew half as fast as expected in first quarter
First official estimate of GDP growth comes in at 0.2%, prompting the chancellor to warn that Conservative plans for spending cuts would push the UK back into recession
Today's official GDP figures round off a busy week of key economic indicators. Photograph: David Levene
Britain's economy grew at only half the pace expected in the first quarter of this year, according to official data released today, prompting warnings from Alistair Darling that Conservative plans for £6bn of spending cuts would push the country's "fragile" recovery back into recession.
The economy grew by just 0.2% in the first three months of 2010, down on the 0.4% expansion in the final quarter of 2009 and weaker than the City had been expecting.
Speaking to the Guardian from Washington, the chancellor said that David Cameron would be forced to axe jobs in order to pare public spending. "Confidence is everything," Darling said. "If you break that confidence you run the risk of going back into recession."
"The recovery is still fragile" he said. "To start taking money [out of the economy] now would be madness. If we derail the recovery all the progress we have made will have been for nothing."
With the economy again moving to centre stage in the election campaign, Darling warned that the psychological impact of the Tory cuts would be far greater than their monetary value. "Our stimulus package was worth £6bn but the impact on confidence would be far greater. It would be the same with the Tory cuts, which would come in a quarter of the way through the year and would inevitably fall on jobs".
Economists said the gross domestic product (GDP) growth figure was likely to be revised higher when the Office for National Statistics (ONS) issues two more detailed estimates in May and June once it has collated more data. There were signs that the harsh weather at the start of the year had hurt growth as restaurants, shops and building companies lost business.
Nevertheless, analysts backed Labour by citing the anaemic growth as proof that spending cuts too soon could derail the recovery.
Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said: "It does seem that following the bounce back in February from the fall in output in January, momentum in the economy is waning.
"Downside risks to economic growth remain, not least the extent of the fiscal tightening we will see after the election," she said.
The Liberal Democrat Treasury spokesman, Vince Cable, said today's figures showed "the promised recovery is barely visible" and also rounded on Tory plans for spending cuts.
"There is a real danger of the UK going into a double-dip recession. As people deal with their own debts and as the banks continue to strangle good British businesses by starving them of credit the recovery will remain fragile," he said.
"The British economy has had a massive heart attack – it has just emerged from the intensive-care unit into the recovery ward. The worst possible action is the Tory proposal to pull out the drip-feed when the patient is still in a critical condition."
The shadow chancellor, George Osborne, used the GDP data to again highlight the Tory proposal to reverse a planned rise in national insurance and reassert claims that a hung parliament could be dangerous for the recovery.
"What Britain doesn't need now is a jobs tax that would kill the recovery or a hung parliament that would lead to economic paralysis. What we need is a new government ready to take decisive action to stop the jobs tax, deal with our debts and get the economy working for everyone," said Osborne.
The ONS echoed business surveys blaming the harsh weather, saying there was anecdotal evidence it had depressed output from the retail sector and industry. The service sector – which spans shops to banking – grew just 0.2% in the quarter, less than half the 0.5% pace recorded in the final three months of 2009.
Within the sector, the component that includes retail – distribution, hotels and restaurants – contracted by 0.7%, the biggest fall for a year.
However, the industrial output figures told a different story, with production up 0.7%, almost double the previous quarter and the strongest in four years. There were signs that the cold had brought a big boost to energy companies as households cranked up their heating. Utilities' output grew at the fastest pace in more than two years, up 2.5%.
The chancellor said he had not been surprised by the sluggish performance of the economy between January and March. "A lot of the stimulus measures designed to bring spending forward into 2009 came off, so it was in line with what I had been expecting. I still believe the economy will grow by between 1% and 1.5% this year."
Darling said that there was a good chance that the early estimate of GDP for the first quarter would be revised later, noting that growth in the final three months of 2009 had been pushed up from 0.1 to 0.4% once more data was available to the ONS. But he added that recovery was not being aided by the weak performance of the eurozone, the destination for more than half of Britain's manufactured exports.
At a press conference, Gordon Brown also seized on the figures as evidence of the delicate nature of the recovery and the need for caution. "The reason growth has been slow is in January, February retail sales were very difficult after the VAT reduction was withdrawn; then we had the terrible month of weather, which hindered transport and communications in business in the country," the prime minister said.
"Obviously it has been a difficult few months but that just shows how fragile the recovery is."
The data rounds off a week laden with politically charged economic indicators that saw inflation come in far above target, unemployment hit a 15-year high and the public finances record their worst year on record since the 1940s, although they were not as bad as the Treasury had forecast.
Although inflation is high, experts said today's growth data reinforced the view that the Bank of England will keep interest rates at their record low for many months to come.
James Knightley, economist at ING Financial Markets, said: "We remain cautious on the UK recovery story. Confidence is falling, real wage growth is negative and with fiscal consolidation set to kick in over coming quarters the household savings ratio will have to fall sharply in order for the household sector to generate any growth in spending.
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