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UK Economy Grew More Than Thought In 2012

(c) Sky News 2013

The economy performed better than expected across 2012 despite shrinking in the final quarter, according to new official figures.

The Office for National Statistics (ONS), in its second estimate for the fourth quarter, maintained its finding that output fell by 0.3% between October and December.

Slow wage growth hitting consumers' pockets was a major factor.

However, compared with a year ago, the UK economy was 0.3% bigger - better than the first reading which suggested output was flat.

Sky's Economics Editor Ed Conway says this means Britain is only a small revision away from having never suffered a double-dip recession at all.

The better-than-expected scenario is a boost to Chancellor George Osborne ahead of his Budget next month.

However, the fourth quarter's output performance continues to highlight the risk of a triple-dip recession.

Last week, ratings agency Moody's downgraded Britain's triple-A credit rating , citing weak growth which it said was damaging the Government's fiscal targets.

The move dominated debate between Ed Miliband and David Cameron during Prime Minister's Questions.

According to the ONS output in the service sector, which makes up 75% of the UK economy, fell by 0.1% in the final quarter of 2012.

Industrial production was the big loser, contracting by 1.9% - its biggest decline since the first quarter of 2009 - while construction output grew by 0.9%.

Activity surveys for the first quarter of 2013 have given a mixed picture but have so far pointed to a picture of slight GDP growth for the period which, if realised, would mean the UK avoiding a new third period of recession.

Economists believe the continued and deepening squeeze on consumer spending as a result of low wage growth and rising prices is one of the greatest risks.

Chris Williamson, of Markit, said: "With political tensions rising in the eurozone due to the inconclusive Italian elections, low consumer confidence at home, signs of still weak bank lending and businesses remaining reluctant to invest due to economic uncertainty, none of the main causes of weak growth have been resolved.

"The outlook for the rest of the year is therefore one of very modest economic growth at best with ongoing, heightened risks of another slide back into contraction."