The U.K. government should be doing more to promote growth if the country is going to revive its struggling economy, shadow finance minister Ed Balls told CNBC on Thursday, as new data emerged showing that the U.K. is likely to enter into a triple-dip recession.
The U.K. enjoyed a brief respite from a contraction in gross domestic product (GDP) in recent months, but the country's independent forecasting body now expects a contraction in the fourth quarter.
The news emerged as Finance Minister George Osborne gave his budget update on Wednesday, and prompted critics to call for a greater emphasis on growth measures. They argue that Osborne's decision to continue to implement harsh austerity measures is proving counterproductive.
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The Budget of Office Responsibility forecast a 0.1 percent decline for the fourth quarter of 2012. In addition, a survey from Markit released on Wednesday afternoon showed the services sector took an unexpected downturn in November.
"If you're in a hole, stop digging," Ed Balls told CNBC Thursday, urging Osborne to get the economy growing and help people back into work.
"The debt dynamics of a country like ours are fundamentally about growth....until you get growth back into this economy, in my view, you're going to continue to see the fiscal position under great pressure," he said.
"Going into next year I think this is a very concerning situation."
Chief economist Chris Williamson said the latest reading on the U.K.'s services sector was the third-weakest since April 2009 and was consistent with the economy sliding back into contraction.
Finance Minister George Osborne on Wednesday announced a "fiscally neutral" budget update at his Autumn Statement as he continued his plan for austerity. So far, credit ratings agencies have left the U.K.'s credit rating unchanged at the highest triple A-level, but Fitch has warned that the rating is at risk. It is concerned about Osborne's announcement on Wednesday that the U.K. will miss its debt reduction target.
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Public borrowing and debt figures were revised upwards as Osborne announced that cutbacks would have to continue until 2018. However the finance minister was adamant that the country was on the track.
"People look at the U.K. and say: here's a country that's got a grip on its problems, that's confronting its problems and I think they saw further evidence of that yesterday," he told CNBC Thursday.
"We've got to go on commanding the confidence of the world that we can deal with our debts. That is reflected in the very very low interest rates that we get at the moment for gilts. And of course that's the test - how much are investors willing to pay for the debt?"
Yields on the U.K.'s benchmark 10-year bonds, which are seen as a safe haven during uncertainty, fell during Wednesday's Autumn Statement. The yield ended the day at 1.77 percent and record lows have been achieved since May, but Nigel Green CEO of the Devere Group is wary that Osborne's direction could be negative in the longer term.
"In his speech, George Osborne was clear that the economic outlook remains bleak and that austerity would have to extend well into the next parliament," he said in a statement.
"This message is helping to fuel a bond bubble as investors, who are prudently concerned about volatility, pile further into bonds."