UK economy shrinks 0.2%

The British economy contracted by a worse-than-expected 0.2 percent in the fourth quarter of last year, official data showed Wednesday, stoking fresh fears of a double-dip recession. "GDP decreased by 0.2 percent in the fourth quarter of 2011, driven by weakness in the production sector and the construction sector," the Office for National Statistics (ONS) said in a statement. The disappointing performance, which comes amid painful government austerity measures and the raging eurozone debt crisis, was a major slowdown from the 0.6-percent growth witnessed in the previous three months. And it marked the first quarterly contraction since the fourth quarter of 2010, when economic activity was hit by freezing weather and fell by 0.5 percent. Market expectations had been for gross domestic product (GDP) to shrink by 0.1 percent in the October-December period, compared with the third quarter. "Today's data suggest that the UK is probably in the midst of a double-dip recession and we expect the economic picture in 2012 to remain gloomy," said economist Scott Corfe at the Centre for Economics and Business Research. "Exports will be sluggish with our main export markets in Europe in recession and other markets slowing down, while investment is unlikely to be buoyant against this background." The technical definition of a recession is two successive quarters of contracting economic output. Although Britain is not a member of the eurozone, it relies on the crisis-hit region for the majority of its trade. "Unfortunately, UK economic activity is likely to get worse before it gets better, with a technical recession likely to be confirmed by first-quarter 2012 GDP numbers," said ING economist James Knightley. "Household spending is constrained by the fact that wages have failed to keep pace with the cost of living for four consecutive years while job insecurity is rising once again," added Knightley. "At the same time, austerity measures mean government spending will contract and the eurozone sovereign debt crisis is hurting exports to the UK's largest trading partners." Wednesday's data came one day after the International Monetary Fund slashed its 2012 growth estimate to just 0.6 percent, compared with the prior forecast of 1.6 percent expansion, and blamed "intensifying strains" in the eurozone.