Britain avoided a double-dip recession in 2011 but suffered a deeper than first estimated collapse in output following the financial crash, according to official figures that show the economy is further away from a full recovery than previously thought.
The Office for National Statistics said the revisions to quarterly growth figures at the beginning of 2012, which were widely expected, indicated the economy was slightly stronger and converted a 0.1% fall in activity into flat growth. Without a fall in GDP in the first three months of 2012, Britain did not suffer two consecutive quarters of negative growth and a double-dip recession.
The ONS said, however, that the 2008/2009 downturn was deeper than first estimated, meaning that economic output was now 3.9% lower than its pre-crunch peak, compared with a previous estimate of 2.6%.
Jeremy Cook, the chief economist at the foreign exchange firm World First said: "Whether the UK entered a double-dip or - as today's numbers show, it didn't - matters little to the man on the street who is seeing large falls in real-term wage growth as a result of the lack of business output. Sterling has fallen in the aftermath of this announcement, and although this data is three months old and could be considered stale, the lack of real improvement since leaves the government and the new Bank of England governor a lot to do."
Coming a day after George Osborne was forced to announce a further £11.5bn of cuts to government spending in 2015/16, the news that a double-dip recession has been written out of the economic history books will cheer the Treasury. Ministers have battled to show that the economy was healthier than official statistics showed during the turbulent years of 2011 and 2012, which were marred by the eurozone crisis and fears that the currency zone would break up.
Separate figures revealed the economy was further away from getting back to its 2008 peak and disposable incomes are at levels last seen in 1987. The ONS said the downturn in 2008/09 saw GDP decline by 7.2%, from the previous estimate of 6.3%.
A deeper recession and a prolonged period of low growth leaves the government with a higher mountain to climb to restore the economy back to health, said analysts.
Figures showing a long-term fall in disposable incomes emphasised the difficult task facing the Treasury as it struggles to boost consumer confidence and high street spending, both of which remain weak. Household disposable income fell by 1.7% in the first three months of 2013 compared with the previous quarter, which left it down by 0.3% year on year.
Howard Archer, the chief UK economist at IHS Global Insight, said the fall "undoubtedly reflected higher inflation, very low wage growth and faltering employment at the start of the year".
Consumer spending continued to rise, however, which Archer said was partly financed by a drop in the household savings ratio to 4.2% from 5.9% in the fourth quarter of 2012 and 7.1% in the third quarter. "This highlights the fact that consumers do still face serious headwinds," he said.
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