Britain's double-dip recession was erased from history today after widespread revisions to official data. The Office for National Statistics (ONS) said the nine-month contraction at the end of 2011 and beginning of 2012 never happened thanks to a stronger-than-reported performance from the construction sector in the first quarter of last year.
But the ONS revealed the initial recession following the financial crisis was far worse than first feared, with gross domestic product (GDP) now estimated to have plunged by 7.2% from peak to trough, against a 6.3% fall previously recorded
The steeper 2008/09 recession means that the British economy is now even further behind its pre-crisis level, according to the ONS. GDP is now 3.9% lower than its peak in the first quarter of 2008 - previously it was estimated to be 2.6% below.
Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "Of course, more relevant are the timelier indications that the economy has continued to gather momentum in the last few weeks. "However, the detail on first quarter 2013 GDP provides further reason to be cautious about assuming a strong recovery is getting under way." She added that incoming Bank of England governor Mark Carney may still need to take action to boost the economy after he takes the helm next Monday.
Until now, the UK is believed to have fallen into a second recession in the wake of the financial crisis after contracting by 0.1% in the fourth quarter of 2011, followed by the same figure for the start of 2012 and a steeper fall in the second quarter as output was hit by an extra holiday for the Queen's Diamond Jubilee.
A recession is defined as two or more consecutive quarters of falling GDP. But recent data showed the construction sector did not fare quite as badly in the first quarter of 2012 as previously believed. Instead of declining by 5.7%, it fell by 4%, which led to overall GDP being revised to 0% in the first three months of 2012, interrupting the run of three consecutive declines and therefore wiping the double dip from the record.
The revisions to past data come in the third and final estimate of this year's first quarter GDP, which confirmed the economy grew by 0.3%. Year-on-year the first quarter performance was worse than expected, with the ONS revealing that GDP grew by 0.3% against the 0.6% rise previously recorded.
A more detailed breakdown of the data also showed the pressures faced by consumers as real household spending plunged by 1.7% in the first three months of 2013 - the largest drop for 26 years. Consumers were hit by falling wages and rising inflation, according to the ONS. Business investment also fell, by 1.9% quarter-on-quarter to £27.3 billion. However, the recovery is expected to pick up in the second quarter, with GDP forecasted to grow by 0.5%.