Britain has slipped into a double dip recession, a respected think tank claimed today in a shock announcement.
The Organisation for Economic Co-operation and Development believes the economy shrank by 0.1 per cent in the first three months of this year, following a 0.3 per cent drop at the end of 2011.
This would mean Britain is technically back in recession and deliver a blow to Chancellor George Osborne’s plans.
However, many other economists are predicting that the country will avoid a double dip and the Treasury immediately questioned the Paris-based think tank’s findings.
A source said: “The OECD forecasts do not incorporate today’s services sector data which show continued growth. Many other forecasters are predicting a strong start to the year.”
The OECD said the economy will be growing again by the second quarter, April to June.
Other experts, including Bank of England governor Sir Mervyn King, have said the Diamond Jubilee celebrations, with a double bank holiday, could cause the economy to shrink.
There is more of a consensus that it will grow again in the third quarter.
Mr Osborne said the independent Office for Budget Responsibility believes the UK will avoid recession.
He added: “We will see what the data shows over the next few weeks but there have been some more encouraging economic signs in recent months.”
Shadow chancellor Ed Balls said: “A double-dip recession can and should be avoided. But after 15 months of zero growth under George Osborne, simply avoiding a technical recession is not good news for our economy.”
He accused the Chancellor of choking the recovery with tax rises and spending cuts which go “too far and too fast”.
However, Philip Shaw, at Investec, predicted the economy will show growth of 0.3 per cent in the first quarter of the year.
The Office for National Statistics said the services sector grew by 0.2 per cent between December and January.
The OECD warned of a two-speed recovery in G7 nations, with America enjoying a rapid expansion but Europe facing a “very weak” outlook. It called for a bigger firewall to stop the eurozone crisis hitting Britain.
It said oil price rises would fuel inflation, wiping up to 0.2 per cent from growth across G7 nations.
