We're not buying our way out of a double dip recession

Britons! You have let your country down - although it's not your fault. We've just learned that the British economy shrank by 0.2% in the first three months of the year. Coupled with a contraction in the previous quarter that puts us in a technical recession.

I have just come from an interview with the Chancellor of the Exchequer who struck me as very sober but resigned to the punishing headlines this will trigger.

His opposite number, Labour's Ed Balls, has been swift to seize on the news

We consistently warned that [the government's] austerity plan was self-defeating and that cutting spending and raising taxes too far and too fast would badly backfire. David Cameron and George Osborne['s ...] economic credibility is now in tatters.

– Ed Balls MP, Shadow Chancellor

The Chancellor won't budge on austerity, however. Just minutes after the data was released he told me:

If you ask the British people should we borrow and spend even more in a debt crisis, I think you'd get a very clear answer that that would be a disaster for Britain that would make this difficult situation - I freely admit it's a difficult situation - into a disastrous situation where we lost confidence of the world.

I wrote yesterday that what mattered was the overall trend and that volatile data (especially in construction) might pull the overall number down.

In fact construction has fallen but by not nearly as much as feared.

Instead it's the service sector - which includes retail spending (i.e. you) - which has been the surprising weak link, rising only 0.1%. As the sector makes up three quarters of the economy compared with only 7% for construction, a poor showing there has contributed to the overall contraction. This is worrying as it can't be as easily explained away by statistical whims.

The Bank of England has been at pains to focus on the underlying trend rather than the zig-zag of quarterly figures which can be so volatile. However, Alan Clarke, an economist at Scotiabank, has stripped out the pesky construction figures and utilities but calculates it still leaves zero underlying growth.

It's the service sector - which includes retail spending (i.e. you) - which has been the surprising weak link Credit: Reuters

So whither now? What does the rest of the year hold for us? It may not, after all, be as miserable as a wet Wednesday on Whitehall suggests.

First, some economists are pouring doubt on the numbers themselves. Andrew Goodwin who advises the Ernst and Young ITEM Club (an economic forecaster) has been visiting businesses and says "these figures just do not fit with our experience of the market."

Also 90 minutes after the GDP bombshell the CBI published its Industrial Trends survey - with a much rosier picture of manufacturing health and prospects. Manufacturing makes up only a little more than a tenth of the economy and the survey can sometimes be over-optimistic but it suggests that the UK isn't doomed. Don't expect the headline writers to reflect that opinion just yet.