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UK economy shrinks in Q4, raising recession fears
UK economy contracts by 0.2 percent in fourth quarter, increasing worries of recession
By The Associated Press

LONDON (AP) ' Britain's economy shrank by 0.2 percent in the last three months of 2011, official data showed Wednesday, a worse than expected result that raises fears of a recession and could see the Bank of England push for more monetary stimulus.

The Office for National Statistics said that the economy, which had been expected to contract by only 0.1 percent, saw no growth in the key services sector and a slide in industrial activity.

The GDP figures, which showed a meek 0.8 percent rise on the year, are subject to revision, but few analysts expect a marked improvement. Another quarter of negative growth would put Britain officially in a recession.

"With the economy sticking one foot through the recession door in the fourth quarter of 2011, more quantitative easing from the Bank of England in February looks a done deal," said Howard Archer, chief European economist at IHS Global Insight.

Quantitative easing is a stimulus program in which the central bank buys bonds and other high-quality financial assets from banks, increasing the amount of money flowing around the economy. The hope is that it will increase bank lending and, by extension economic activity.

The Bank of England last increased its quantitative easing program by 75 billion pounds in October.

Minutes of the last policy meeting, in January, showed that the nine members of the Bank's Monetary Policy Committee had been, as expected, unanimous in voting not to approve more stimulus.

The Bank had indicated that it would take at least through January to spend the 75 billion pounds in asset purchases.

Some of the MPC members are concerned about Britain's high rate of inflation, which was last measured at 4.2 percent, still twice the 2 percent target despite dropping in recent months.

The minutes showed there some members worried that approving more monetary stimulus would slow the drop in consumer price inflation. Others wondered whether inflation was dropping so fast that more stimulus would be necessary to keep price increases close to the 2 percent target in coming months.

Inflation tends to fall as economic activity drops, and the outlook is not good. The International Monetary Fund this week slashed its forecast for U.K. economic growth this year to 0.6 percent from 1.6 percent previously.

Treasury chief George Osborne said Wednesday's figures were "not entirely unexpected because of what's happening in the world and what's happening in the eurozone crisis."

"Britain has substantial economic problems, debt built up over the past 10 years, and we are dealing with those, but the truth is that dealing with those problems is made more difficult by the situation in the eurozone," Osborne said.

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