Breaking News: Blow as GDP drops by 0.3%

THE UK’s economy contracted by 0.3% in the final quarter of 2012, increasing the chances of a triple-dip recession later this year.

Official figures from the Office for National Statistics show output shrank following 1% growth in the third quarter, although this was considered to be artificially skewed by the Olympics.

Overall, there was no growth last year.

The latest figure was dragged down by a sharp contraction of 1.5% in manufacturing, and 1.8% over the year.

The service sector was flat, but there was a more positive outlook for construction which saw output rise by 0.3%, compared with a decrease of 2.5% between the second and third quarters.

The IMF’s chief economist, Olivier Blanchard, has urged Britain to lessen the pace of its austerity programme to avoid another recession.

But Chancellor George Osborne, who is at the Davos summit, has said UK spending cuts must continue if the government is to retain credibility.