The U.K. economy shrank in the first quarter as a slump in construction pushed Britain into its first double-dip recession since the 1970s.

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 Wednesday 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.

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. As an anti-austerity backlash gains ground in Europe, the report may add to criticism of Prime Minister David Cameron and Chancellor of the Exchequer George Osborne’s budget cuts.

“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.”

Editor’s Note: Economist Unapologetically Calls Out Bernanke, Obama For Mishandling Economy. See What They Did.

U.K. 10-year gilts advanced immediately after the data were published before easing again. The yield was unchanged at 2.097 percent as of 11:15 a.m. in London. The pound fell as much as 0.4 percent against the dollar and traded at $1.6101.

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.

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.”

Consumer Squeeze

Rising energy prices, government spending cuts and anemic wage growth are squeezing 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.

The FTSE 100 index rose 0.2 percent today. It has gained 2.8 percent this year, trailing the 4.8 percent increase by Europe’s Stoxx 600 Index.

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.

‘Very Tough’

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.

Cameron’s 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

It was 1975 when Britain last experienced consecutive drops in GDP before the economy had recovered output lost in the previous recession, the definition of a double-dip recession. U.K. Treasury forecasters and the International Monetary Fund predict the U.K. economy to grow 0.8 percent this year, the same as last year.

Editor’s Note: Economist Unapologetically Calls Out Bernanke, Obama For Mishandling Economy. See What They Did.

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 David Miles on the nine-member Monetary Policy Committee sought an expansion in emergency stimulus this month. Miles 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 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.

Also in the U.S., orders for durable goods excluding transportation equipment probably rose in March. Bookings for goods meant to last at least three years outside of aircraft and automobiles increased 0.5 percent, according to the median forecast of economists surveyed before a report today.

Total orders probably dropped as demand for planes, which is volatile, pulled back after surging in February, economists projected.