UK is back in recession, OECD says

OECD deputy secretary-general and chief economist Pier Carlo Padoan talks down the UK's economy. Photograph: Eric Piermont/AFP/Getty Images

The UK is heading back into recession and will be among the slowest of the world's largest economies to recover in the first half of this year, according to a study by the Paris-based thinktank, the OECD.

Only Italy will struggle over a longer period to return to growth, highlighting the difficult situation confronting the British government as it battles to boost confidence and get the economy back on track.

In recent weeks surveys have shown the business and consumer sentiment falling back after an initial boost earlier this year.

The Office for National Statistics added to the gloomy prognosis for the economy on Wednesday when it reported a bigger fall in output in the final three months of 2011 than first estimated. It said a previous 0.2% drop in output had underestimated the size of the fall, which further analysis found to be 0.3%.

The OECD, which produces quarterly figures showing year-on-year growth, said that UK output declined at an annual rate of 1.2% in the final quarter of 2011 and will decline at an annual rate of 0.4% in the first three months of 2012.

The OECD also warned that the eurozone remained in a fragile state and would struggle to grow for the rest of the year.

Germany and France will race ahead of the UK in the first half of the year but are forecast to slow down as the year ends.

Consumer and business confidence surveys of the eurozone on Thursday showed a decline that economists described as a blow to hopes of a recovery during 2012.

Sentiment was mixed among individual countries in March. Confidence suffered a relapse in Germany and Spain, while it picked up slightly in France and Italy.

The OECD has criticised Brussels for its failure to build a sufficient firewall of guarantees and insurances to protect against a sovereign collapse.

In a report last week the OECD said the EU should commit at least €1 trillion to safeguard Italy, Spain, Portugal and Ireland against collapse after Brussels put forward plans that limited the rescue fund to €700bn (£580bn).

One of the worst hit industries in the UK is construction, which is a traditional driver of growth after a recession but has barely recovered from the crash.

Balfour Beatty, one of the UK's largest building firms, said it needs to make cuts among its 12,000 services staff.

It warned that reduced public sector spending on infrastructure and maintenance coupled with low levels of commercial property development were hitting profit margins.

Hundreds of construction firms and architecture practices are known to have laid off staff after a rehiring programme in 2010.

Unemployment in the UK has risen for the last year, in contrast to the US, which has maintained several large scale public spending programmes to promote employment and maintain consumer and business confidence.

The US economy is expected to grow at 2.9% in the first quarter and maintain that level of growth through the summer months, according to the OECD.