Economy shrinks by unexpected 0.3%

Herald Series: Chancellor George Osborne said he would not 'run away' from the problems facing the UK economy Chancellor George Osborne said he would not 'run away' from the problems facing the UK economy

Britain's recovery slammed into reverse at the end of last year after the economy contracted by a worse-than-expected 0.3%, official figures have revealed.

The fall in gross domestic product (GDP) between October and December compares with 0.9% growth in the third quarter and will raise fears that the UK is on course for an unprecedented triple-dip recession.

GDP - a broad measure for the total economy - would have to contract again this quarter for the UK to be back in recession, but hopes of a rebound are starting to fade after a snow-hit start to 2013. The Office for National Statistics (ONS) said economic output as a whole remained flat in 2012.

The fourth-quarter drop is worse than expected, with most economists forecasting a drop of 0.1%. It deals a blow to recovery hopes after the UK bounced back from the longest double-dip recession since the 1950s in the third quarter.

But the rebound was largely driven by one-off factors, such as the Olympics, and as the economy clawed back activity lost during the Queen's Diamond Jubilee holiday, which has skewed quarter-on-quarter changes in activity, the ONS said.

The fourth-quarter figures are preliminary estimates and subject to revision. The latest ONS estimate increases the pressure on Chancellor George Osborne at a time when all three major ratings agencies have the country's prized AAA status on negative outlook.

A Treasury spokesman said: "The official forecast was that the UK economy would contract in the last quarter of 2012 so this figure is not unexpected. It confirms what we already knew - that Britain, like many European countries, still faces a very difficult economic situation."

Mr Osborne said he would not "run away" from the problems facing the UK economy: "We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.

"Now, we can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country."

Shadow chancellor Ed Balls accused Mr Cameron and Mr Osborne of being "asleep at the wheel". He said: "Today is the moment when David Cameron and George Osborne's complacency is completely exposed. These deeply disappointing figures expose just how dangerously complacent the Prime Minister was when he said last autumn that the 'good news will keep coming'."

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