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LONDON (Reuters) - Britain's economy shrank more than expected in the last three months of 2012, coming closer to its third recession in four years, after lower output from the North Sea and manufacturers.
The Office for National Statistics said on Friday that Britain's gross domestic product fell 0.3 percent in the fourth quarter - a sharper fall than the 0.1 percent decline seen by analysts. GDP grew by 0.9 percent between July and September.
The news will be a blow for Britain's Conservative-led government, which only a day earlier defended its austerity program against criticism from the International Monetary Fund's chief economist.
The economy is now 3.3 percent smaller than its peak in Q1 2008, recovering only about half the output lost during the financial crisis - a worse performance than other major economies.
Britain's economy also suffered a mild recession from late 2011 to mid 2012.
The biggest driver for the fall in GDP was a 10.2 percent quarterly drop in mining and quarrying output, the biggest since records began in 1997, driven by disruption to North Sea oil and gas fields.
This knocked 0.18 percent of GDP, while slightly smaller amounts of damage were done by a falls in factory output and in the 'government and other services' category, where the London Olympics had boosted sports and recreation services in the third quarter.
At the start of 2013 one-off factors, such as January's snow, may seal the fate of an economy on a knife-edge between growth and contraction, with major retailer John Lewis already warning on Friday that snow had hit sales growth.
Britain's chief central banker Mervyn King expects no more than a "gentle recovery" this year, while this week the International Monetary Fund cut its 2013 forecast for British economic growth to 1.0 percent from 1.1 percent predicted in October.
However, even such lackluster growth could be derailed, as some analysts and business groups warn, by a hit to firms' and consumers' confidence from talk of a triple-dip recession.
That prospect will add to pressure on the ruling coalition of Conservatives and Liberal Democrats to loosen its deficit-cutting drive and bolster the economy, or risk a hammering in the 2015 elections.
Output in Britain's service sector - which makes up more than three quarters of GDP - was flat percent in the fourth quarter after rising 1.2 percent in the third.
Industrial output was 1.8 percent lower, while construction - which accounts for less than 7 percent of GDP - grew by 0.3 percent.
Reporting by David Milliken and Olesya Dmitracova