Britain edges closer to recession as GDP falls

Britain's economy edged closer to recession in the last three months of 2011, after output contracted for the first time in a year, official data showed.

The figures are likely to reinforce expectations the Bank of England will inject more stimulus into the economy next month after BoE Governor Mervyn King warned of an arduous recovery ahead.

The Office for National Statistics said gross domestic product fell 0.2 per cent in the fourth quarter after growing by 0.6 per cent in the third quarter of 2011 - worse than economists' forecasts for a 0.1 per cent contraction.

The decline is also slightly bigger than that expected by the BoE and the independent Office for Budget Responsibility, which assesses whether the government's fiscal plans are sustainable.

For 2011 as a whole, GDP expanded by 0.9 per cent, less than half the pace recorded in 2010.

On the year, fourth-quarter output was 0.8 percent higher, flattered by a sharp fall in output in the year-ago quarter due to heavy snow.

The fourth-quarter contraction in output follows a 0.25 per cent decline in German GDP, and if UK output falls in the first three months of 2012, Britain will enter its second recession in three years.

The figures increase the chance that the Bank of England will approve a further £50bn of quantitative easing in February, once the current £75bn of purchases started in October are complete.

Bank Governor Mervyn King said on Tuesday that the central bank had scope to give the economy another cash boost if needed as inflation is falling and Britain faces an "arduous, long and uneven" economic recovery.

Minutes to January's Bank policy meeting, also scheduled for release at 9:30 a.m., will shed further light on the stance of the central bank, which forecasts economic stagnation until mid-2012.

The contraction will be a blow to the Conservatives, which is facing growing criticism from the Labour Party over its flagship five-year austerity programme.

Labour has accused the government of focusing too much on spending cuts rather than boosting growth as a way to reduce record public debt levels, which breached the one trillion pound barrier in December.

Economists are generally split as to whether the economy will continue to contract in early 2012, but all stress that any decline will be modest compared to the record 7.1 percent fall in output in Britain's last recession in 2008-09.

Wednesday's data showed that manufacturing, electricity and gas, and distribution, hotels and restaurants were the main contributors to the fall in output, each subtracting 0.1 percent from GDP.

Manufacturing output fell 0.9 per cent on the quarter, its biggest drop since quarter three of 2009.

Utilities output was down 4.1 per cent, its biggest fall since the start of 2011 as mild weather reduced demand.

Output in the services sector, which accounts for 76 per cent of GDP, was flat on the quarter, its weakest outturn since quarter four of 2010.

The effect of a 0.4 percent rise in government and other services was cancelled out by a 0.5 per cent decline in the distribution, hotels and restaurants sector, which includes retail.