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Economy shrinks by worrying 0.3%

The UK economy shrank by 0.3% in the last three months of 2012, further fuelling fears that the economy could re-enter recession.

In releasing the figures today, the Office for National Statistics (ONS) said that the fall in output was largely due to a drop in mining and quarrying, after maintenance delays at the UK's largest North Sea oil field.

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. The economy had grown by 0.9% in Q3 and had been boosted by the Olympics. However, this had also skewed quarter-on-quarter changes in activity, the ONS said.

The fourth-quarter drop is worse than expected - most economists had been forecasting a drop of 0.1%.

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 fading after the snow-hit start to 2013.

The ONS said economic output as a whole remained flat in 2012.

The figures are preliminary estimates and subject to revision however, 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.