The fall in GDP from the fourth quarter was due to a 3 percent drop in construction, the most since the first quarter... Read More 
 
 The fall in GDP from the fourth quarter was due to a 3 percent drop in construction, the most since the first quarter of 2009, and a 0.4 decline in industrial production. Close 
 
 A pedestrian holds a Tesco-branded shopping bag as he looks in the at the window display of a store advertising a... Read More 
 
 A pedestrian holds a Tesco-branded shopping bag as he looks in the at the window display of a store advertising a "Bankrupt Stock" sale in the Kingston suburb of London. Close 
 
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 Pedestrians walk through the More London office space against the backdrop of Tower Bridge, in London. Close 
 
 Pedestrians walk through the More London office space against the backdrop of Tower Bridge, in London. 
 
 The U.K. economy shrank in the first quarter as Britain slid into its first double-dip recession since the 1970s, forcing Prime Minister David Cameron to defend his spending cuts in Parliament. 
 
 Gross domestic product fell 0.2 percent from the fourth quarter of 2011, when it declined 0.3 percent, the Office for National Statistics said today in London. The median of 40 estimates in a Bloomberg News survey was for an increase of 0.1 percent. A technical recession is defined as two straight quarters of contraction. 
 
 As an anti-austerity backlash gains ground in Europe, Cameron described the data as “disappointing” and pledged to support growth without backtracking on the U.K.’s biggest fiscal squeeze since World War II. The Bank of England is in the final month of its latest round of economic stimulus and the drop in output comes as prospects dim in the euro region, Britain’s biggest export market. 
 
 “This isn’t supportive of the fiscal consolidation program, so the government is likely to be concerned about that,” said Philip Rush, an economist at Nomura International in London. “The data were bad, and that supports the view that the Bank of England will do a final 25 billion pounds of quantitative easing in May.” 
 
 Bank of England policy maker David Miles had signaled yesterday that today’s result was possible, saying in an interview with Bloomberg News that a negative number “wouldn’t be a great surprise.” 
 
 U.K. 10-year gilts advanced immediately after the data were published before easing again. The yield rose 3 basis points to 2.123 percent as of 1:12 p.m. in London. The pound fell as much as 0.4 percent, then pared its decline to $1.6116. 
 
 Construction Slump 
 
 From a year earlier, the economy was unchanged in the first quarter. The median estimate in a Bloomberg survey of 31 economists was for 0.3 percent growth from a year earlier. 
 
 The quarterly drop in GDP was due to a 3 percent slump in construction, the most since the first quarter of 2009, and a 0.4 decline in industrial production. Manufacturing contracted 0.1 percent and services, the largest part of the economy, expanded by 0.1 percent, boosted by transport, storage and communication. 
 
 The data contrasts with a report today showing confidence among manufacturers rose to the highest level in two years this month. The Confederation of British Industry’s quarterly gauge of factory optimism surged to 22 from minus 25 in January. 
 
 Separate surveys this month showed that growth in services, manufacturing and construction accelerated in March. The British Chambers of Commerce said the GDP data is likely to be revised higher by the statistics office. 
 
 ‘Underlying Trend’ 
 
 Surveys “have shown a more positive picture, and we believe these give a more accurate indication of the underlying trends,” Chief Economist David Kern said in a statement today. “We think it is likely that the preliminary estimate will be revised upwards when more information is available.” 
 
 The FTSE 100 index rose 0.1 percent today. Still, its 2.6 percent advance this year trails the 4.9 percent increase by Europe’s Stoxx 600 Index. 
 
 Rising energy prices, government spending cuts and anemic wage growth are squeezing U.K. consumers, creating a drag on the recovery. Pay growth slowed to 1.1 percent in the three months through February, less than a third of the inflation rate. An extra public holiday in June to mark Queen Elizabeth II’s 60 years on the throne may also depress economic output in the second quarter. 
 
 Thatcher Elected 
 
 Britain, the first Group of Seven country to report output for the first quarter, was hit hard by the financial crisis that erupted in 2007 and GDP is still 4.3 percent below its pre- recession peak in early 2008. Only Japan and Italy are further behind among G-7 nations. 
 
 The last time Britain experienced a double-dip recession, defined as consecutive quarterly drops in GDP before the economy had recovered output lost in the previous recession, was 1975. That year, Labour Prime Minister Harold Wilson was in office and Margaret Thatcher was elected leader of the opposition Conservatives. U.K. Treasury forecasters and the International Monetary Fund predict the economy will grow 0.8 percent this year, the same as last year. 
 
 The data are “very, very disappointing,” Cameron said in Parliament today, adding that “I don’t seek to try and excuse them. There is no complacency at all.” He pledged to stick to his deficit-cutting plans, saying “the solution to a debt crisis cannot be more debt.” 
 
 ‘Very Tough’ 
 
 Chancellor of the Exchequer George Osborne said the U.K.’s economic situation is “very tough” and the government shouldn’t waver on its fiscal plans, which are aimed at eliminating most of the deficit by 2017. 
 
 “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt,” he said in a statement. 
 
 Their Conservative Party has lost public support over last month’s budget, which voters say helped the rich at the expense of pensioners and charities, and the handling of a threatened strike by tanker-truck drivers. The Labour opposition led the Tories by 41 percent to 33 percent in an ICM Ltd. poll published yesterday. 
 
 In addition to the domestic budget squeeze, Britain’s recovery is being hampered by unfavorable export conditions. 
 
 Euro-area services and manufacturing output declined for a third month in April as the economy struggled to rebound from a fourth-quarter contraction, according to a report on April 23. Confidence among executives and consumers in the economic outlook in the region fell this month, economists in a Bloomberg survey said before data tomorrow. 
 
 BOE Stimulus 
 
 The economy may get little further help from the Bank of England, whose officials have suggested inflation may retreat less quickly than they forecast two months ago. Only Miles on the nine-member Monetary Policy Committee sought an expansion in emergency stimulus this month. He said yesterday in an interview with Bloomberg News that voting for more bond purchases was “still the right strategy.” 
 
 In Asia, all 14 economists in a Bloomberg News survey predict additional easing when the Bank of Japan (8301) releases new inflation forecasts on April 27. Most expect an increase ranging from 5 trillion yen ($62 billion) to 10 trillion yen. 
 
 The U.S. Federal Reserve will release its policy statement at around 12:30 p.m. today in Washington, and its forecasts for interest rates, growth, inflation and unemployment at 2 p.m. Policy makers will probably repeat their plan to keep the benchmark rate low at least through late 2014, economists say. 
 
 To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net 
 
 To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net ||||| Image caption Protesters across Spain demonstrated against cuts in healthcare and education on Sunday 
 
 The Spanish economy is officially in recession, according to the latest figures. 
 
 The National Statistics Institute said the economy shrank 0.3% over the three months to the end of March, the second consecutive quarterly contraction. 
 
 But the contraction was not quite as much as economists had been expecting. 
 
 Concern over the weakness of the economy and the deficit have driven up the cost of borrowing for Spain, raising fears it will need a bailout. 
 
 Separately, Standard and Poor's downgraded the credit ratings of nine Spanish banks, including Santander and BBVA. 
 
 A report in the Financial Times on Monday said that the Spanish government is considering helping the banking industry by allowing them to put bad loans into a government-organised fund. 
 
 But according to the report it is not clear how much benefit the scheme will have, as government officials say banks will have to match the bad loans deposited with provisions for that debt on their own balance sheets. 
 
 Meanwhile, many Spaniards are affected by the crisis. 
 
 On Friday the government said that unemployment hit a record in March of 24.4%. 
 
 And on Sunday, tens of thousands protested planned cuts in healthcare and education. 
 
 The cuts are part of the government's effort to reduce the public deficit to to 5.3% of gross domestic product in 2012, from 8.5 percent last year. 
 
 But that effort is being hampered by the lack of growth. Spain only emerged from a year-long recession in early 2010. 
 
 That prompted the Foreign Minister Jose Manuel Garcia-Margallo to say: "The figures are terrible for everyone and terrible for the government... Spain is in a crisis of huge proportions." 
 
 Guillaume Menuet, an economist at Citigroup, said: "Spain's still very much recession and we think that this isn't going to improve soon." 
 
 "It's likely they'll have to create more fiscal tightening in order to catch up if they wish to avoid going into [a bailout] plan, and that's going to be counterproductive." 
 
 Spain's performance contrasts with Germany, which on Monday announced that retail sales had risen 0.8% in March.
– More bad news for Britain's beleaguered government: The country slid back into recession in the first quarter of this year, according to figures released today. The economy shrank for the second straight quarter, marking the first "double-dip" recession, in which GDP falls before output lost in the previous recession is recovered, since the mid-70s, Bloomberg reports. The British economy shrank 7.1% in the 2008-2009 recession and recovery since has been weak and fitful. The new decline was caused by falling activity in the construction and industrial sectors and stagnation in the services sector. "The dip in activity is small but massively significant," notes Larry Elliot at the Guardian. "With the government up to its eyeballs in the phone-hacking scandal and with local elections looming, the timing could hardly have been worse for David Cameron." Spain has also plunged back into recession, while other major European countries have yet to report GDP data from the first quarter of this year.