The economic slowdown at the end of last year was worse than previously thought – ramping up pressure on the Chancellor to kickstart the recovery in next month’s Budget.
The size of the economy shrunk by 0.6 per cent between October and December, the Office for National Statistics said.
The original estimate of a 0.5 per cent contraction was blamed on one of the worst winters in recent memory, which led to a squeeze on retail sales.
But the new figures suggest that national output would have slipped into negative growth even without the weather.
The downturn is the largest fall on national income in more than two years, since the second quarter in 2009.
The figures were worse than economists expected and put pressure on the Chancellor to help boost the strength of the economy and its ability and justify the Government’s deficit-busting austerity measures.
The one piece of good news for homeowners is that the news of the downturn makes it less likely that the Bank of England will raise interest rates in the immediate future to combat inflation, while there is any danger of a double dip recession.
The Treasury remained upbeat and insisted that the government would not be diverted from its course of cutting Britain’s huge budget deficit.
Officials said initial returns from economic surveys suggest there was an increase in economic activity in January – staving off the threat of a double dip when the next set of figures are announced in April.
Recession fears: Household spending also declined by 0.1%, the first drop since the second quarter of 2009
A spokesman said: ‘The Chancellor said that the fourth quarter growth figures were disappointing and today’s revision doesn’t change that fact.
‘It also doesn’t change the need to deal with the nation’s credit card - the country is borrowing more this year than is spent on the entire NHS.’
The key services sector - which makes up more than 75 per cent of the total economy - declined by 0.6 per cent in the fourth quarter, compared to an original estimate of a decline of 0.5 per cent.
The manufacturing sector did not fare as well as originally thought either, as output increased by 1.1 per cent, revised down from growth of 1.4 per cent.
Shadow Chancellor Ed Balls leapt on the figures: ‘These are disappointing figures which confirm that the recovery stalled and the economy contracted at the end of last year, even once the effects of the snow have been taken into account.
‘Of course we should always treat one quarter’s figures with caution, but it is not cautious for the Treasury to plough on regardless.
‘George Osborne was complacent in declaring before Christmas that he had saved the economy and secured the recovery. And he is being complacent now in refusing to accept that his choice to cut too deep and too fast is holding back our economy and putting jobs at risk.’
But the Chancellor won support from business groups.
David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: ‘We should not be despondent. There are signs that growth rebounded in the first quarter of this year, and it is important to remember that the fourth quarter figures were affected by severe weather conditions. We believe that the Government must persevere with its deficit-cutting programme.’
David Frost, the Director General of the BCC, said: ‘We need to see the Government taking some pro-growth steps and deliver a Budget which boosts business confidence, encourages investment and rekindles the spirit of enterprise.
‘If the Government provides a radical framework, business will do what it does best - creating wealth and jobs, innovating to deliver strong companies and providing the much needed growth for this country.’
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