UK’s slide into recession adds to government woes

Britain’s economy is in its second recession since the financial crisis, data showed yesterday, heaping pressure on Prime Minister David Cameron’s coalition government as it battles a series of political embarrassments.

The unexpected contraction in the first three months of 2012 – a 0.2 per cent dip in gross domestic product – confounded forecasts for 0.1 per cent growth.

It came as Britain’s Conservative-Liberal Democrat coalition has seen its support slide in opinion polls following weeks of fierce criticism for unpopular tax measures in last month’s Budget. Local elections, a big test, are scheduled for next Thursday.

The government is also under fire over revelations about its close relationship with media tycoon Rupert Murdoch.

The Office for National Statistics said Britain’s gross domestic product fell 0.2 per cent in the first quarter of 2012 after contracting by 0.3 per cent at the end of 2011.

Most economists had expected Britain’s economy to eke out modest growth in early 2012, but these forecasts were upset by the biggest fall in construction output in three years coupled with anaemic service sector growth and a fall in industrial output.

The government desperately needs growth to achieve its overriding goal of eliminating Britain’s large budget deficit over the next five years. But this will be a challenge as many of Britain’s eurozone trading partners are already in recession.

The figures will also be a conundrum for the Bank of England, which had appeared poised to end its second round of quantitative easing gilt purchases due to survey evidence that the underlying economy was strengthening.

Cameron has had a torrid time since his government’s annual Budget last month was attacked for cutting taxes at the top end of the income scale while taking from pensioners.

Newspapers and allies who once fell over each other to sing his praises now accuse the expensively educated Conservative Party leader of “speaking for the few” and of “vanity globe-trotting” as the economy sputters and Britons suffer the harshest state spending cuts for a generation.

Things took a turn for the worse on Tuesday when James Murdoch told an inquiry that Jeremy Hunt, Cameron’s Culture Secretary and a close ally, had numerous secret contacts with him and his top London lobbyist ahead of a controversial merger. Rupert Murdoch, James’ media mogul father, was answering questions at the inquiry yesterday.

Britain’s economy contracted by 7.1 per cent during its 2008-2009 recession and has not fully recovered since, with headwinds from the eurozone debt crisis, government spending cuts, high inflation and a damaged banking sector.