Figures from the Office of National Statistics (ONS) show that Britain's economy was even weaker than expected at the end of last year, underlining the country's struggle to avoid another recession.

GDP fell 0.3% in the fourth quarter of 2011, more than the 0.2% drop previously estimated by the ONS. The breakdown of the GDP data also showed that the overall drop included a fall in construction output as well as a dip in service sector output.

Following last week's Budget the National Federation of Builders (NFB) expressed serious concerns about the missed opportunities for using housing and construction to stimulate growth, particularly around stamp duty relief, VAT and lending to construction SMEs, and the GDP figures bear that out.

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Julia Evans, Chief Executive of the NFB, said: "With growth forecast at just 0.8%, it is clear that government policies are falling short of allowing the construction industry to play its full part in economic growth by undermining its ability to maintain its traditional 8% contribution to GDP.

"We have a construction industry severely compromised by a fall in orders, and households with incomes that have slumped in the biggest fall since 1977. This is a huge opportunity for the Government to stimulate economic activity. It must cut VAT on home improvements and energy efficient installations to 5%, creating consumer demand and much needed orders for thousands of small and medium sized builders whose hopes lie in the new work, and repair and maintenance sectors. The chancellor also needs to return the VAT rate on heritage work to zero, to avoid putting the brakes on this important part of the industry. Raising this rate to 20 per cent was a mistake. While there is a need to harmonise the complex tax system, harmonisation that only ever goes one way is just another word for a tax rise."

Research from Experian states that a reduction in the 20% rate for repair, maintenance and improvement to 5% would deliver a total stimulus effect of £7.6 billion to the UK economy by 2015 and create more than 32,000 construction jobs. A 5% rate on energy efficiency work would pave the way for the Green Deal later this year by helping to create consumer confidence.

(CD/GK)