UK economy shrank 0.3 percent in late 2012, grew on year

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February 27, 2013 8:42 PM EST

Britain's economy contracted by 0.3 percent in the final quarter of 2012 as originally estimated, but yearly growth was revised up, data showed on Wednesday.

The figures highlight the danger of a third recession since the 2008 financial crisis, less than a month before Chancellor George Osborne lays out his budget plans for the coming year.

Last week, rating agency Moody's downgraded Britain's triple-A credit rating, citing weak growth which was pushing further back the government's fiscal targets.

Gross domestic product fell by 0.3 percent between October and December compared with the previous three-month period, in line with the Office for National Statistics' initial estimate and economists' forecasts.

However, compared with a year ago, the economy was 0.3 percent bigger, better than the original estimate of flat output, the ONS said.

Consumer spending ticked up 0.2 percent on the quarter, while exports fell 1.5 percent and imports dropped 1.2 percent.

Output in Britain's service sector - which makes up more than three quarters of GDP - dipped 0.1 percent in the fourth quarter after growing 1.2 percent in the third quarter.

Industrial output was 1.9 percent lower, the steepest fall since the first quarter of 2009. Construction - which accounts for less than 7 percent of GDP - expanded by 0.9 percent, the fastest rate of growth since the second quarter of 2011.

Economists polled by Reuters expect the economy to eke out quarterly growth of 0.2 percent in the first three months of 2013, narrowly avoiding a renewed recession.

January surveys of purchasing managers showed growth in the service sector, a tick-up in manufacturing and a fall in construction output, also pointing to modest economic growth.

Early survey evidence of how the economy fared in February has been mixed, with factory order books improving but retail sales rising at the slowest annual pace since September.

(Reporting by Olesya Dmitracova and Li-mei Hoang)

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