Warned: George Osborne has been told Britain is in the midst of a double-dip recession, heaping more pressure on the Chancellor after controversy over his tax on hot takeaway food and a fuel duty rise
George Osborne suffered a bruising blow yesterday when a leading global watchdog declared that Britain is back in recession.
The Organisation for Economic Cooperation and Development said output fell by 0.1 per cent in the first three months of 2012, having dropped by 0.3 per cent in the final quarter of 2011.
If official figures next month from the Office for National Statistics back up the respected think-tank’s findings, it will be the first double-dip recession in Britain since 1975.
The gloomy verdict – from such a highly respected think tank – is a bitter blow for the Chancellor just seven days after his much-maligned 'pasty tax' announced in the Budget.
The Paris-based OECD is a long-time supporter of the Chancellor's battle to repair the economic and financial damage of the Labour years.
But its view that the UK is in the midst of a double-dip recession will be seized on by Labour as evidence that even Mr Osborne's most loyal supporters do not think his plan is working.
Mr Osbourne is already under fire for his controversial tax on takeaway food and a planned rise in fuel duty.
Petrol stations have begun rationing fuel before the rise kicks in and the Army is on standby after ministers were accused of spreading panic.
Retailers such as pasty-maker Greggs have also been up in arms about the planned rise in VAT on hot snacks, depending on their 'ambient temperature', from October.
Now bakers and food chains are planning to mobilise angry pasty fans to block the new levy.
In its report, the OECD also warned the recovery for the world's biggest economies would be fragile, with the outlook for Europe 'very weak'.
A recession is defined as two consecutive quarters of economic decline.
Britain plunged into a brutal recession in early 2008 as the financial crisis and banking crash wreaked havoc on the world economy.
But it started recovering at the end of 2009 – albeit slowly.
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Garages across the country have seen a surge in sales as the threat of a strike by tanker drivers looms. Here motorists panic buy fuel in Burnham on Sea, Somerset
Bank of England figures also out today have fuelled predictions of further property price falls
The return to recession will fuel fears that the UK faces years of high unemployment and stagnant growth.
Economists have warned that Britain is in the grip of the longest economic slump for 100 years – worse even than the Great Depression of the 1930s.
But they are divided as to whether GDP will fall in the first quarter of the year. A number of upbeat surveys have suggested a return to mild growth in the quarter.
And any slump would be modest compared with the 2008/09 recession and the OECD predicts a return to growth in the second quarter of the year.
The Office for National Statistics today said the powerhouse services sector grew by 0.2 per cent between December and January, after a slight decline in the final quarter of 2011.
However, it is generally agreed that the UK's economic growth will be feeble for the first half of 2012 at least, although falling inflation should increasingly deliver a boost to consumer spending as the year progresses.
The Government's independent forecaster, the Office for Budget Responsibility, predicts the UK will avoid a recession but the economy will grow by just 0.8 per cent over the course of 2012.
Pastygate: Greggs could launch an online Parliamentary petition against the controversial VAT hike
Philip Shaw, an economist at Investec, predicts the economy will grow by 0.3 per cent in the first quarter of the year.
He said: 'Recent indications suggest the UK's economy will have expanded in the first quarter. Our own view is that the OECD is being too gloomy.
'The services sector appears to have strengthened, the manufacturing sector is recovering since the end of last year and there's been signs of strength in retail spending.'
Meanwhile, the OECD warned of a two-speed recovery developing in the G7 nations, with North America enjoying a rapid expansion but Europe weighed down by austerity measures.
The OECD said the recent hikes in oil prices, which have pushed Brent crude to above 120 US dollars a barrel, would push inflation up higher than it previously thought, wiping up to 0.2% from growth across G7 nations over the next year.
It expects Italy. which is already in recession, to contract for te first two quarters of 2012, while France will contract in the first quarter and Germany's growth will be lacklustre.
In November, the OECD warned the eurozone crisis was a key risk for the UK economy and it today called for the firewall to be increased in size to help prevent the crisis worsening.
It last year slashed the UK's 2012 growth forecast to just 0.5 per cent from 1.8 per cent earlier in the year and said it expects unemployment to hit 9.1 per cent by 2013, putting another 400,000 people out of work.
Bank of England figures showed today that mortgage approvals for house purchase have dropped to their lowest level since last June, fuelling predictions of further property price falls.
The report showed a sharp dip in approvals even before the ending of a two-year stamp duty concession for first-time buyers, which finished last Saturday.
There were 48,986 loan approvals for house purchase in February worth £7.1billion, almost 9,000 fewer such loans than in January, which was a 25-month high.
The figures follow concerns from lenders and estate agents that a rush to beat the stamp duty deadline would be followed by a dip once the 1 per cent duty for first-time buyers on properties worth between £125,000 and £250,000 was reinstated.
The Bank of England report was published on the same day that Nationwide said house prices recorded a monthly fall of 1 per cent in March.
Last week in his Budget speech, the Chancellor predicted the economy would avoid slipping into recession.
He said the Office For Budget Responsibility had estimated Britain would be in positive growth within the first quarter of 2012.
Mr Osborne added that the OBR's forecast for UK growth was 0.8 per cent in 2012, 2 per cent in 2013, 2.7 per cent in 2014 and 3 per cent in both 2015 and 2016.
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