The UK economy contracted by 0.2 per cent in the final quarter of 2011, the Office for National Statistics (ONS) said today.

The disappointing fourth-quarter performance represents a strong slowdown on the 0.6 per centgrowth in the previous quarter.

Over the course of 2011 as a whole, GDP increased by just 0.9 per cent, much slower than the 2.1 per cent growth in 2010.

It will fuel fears that the UK’s economy is heading for a mild recession - officially defined as two quarters in a row of GDP declines - with economists widely expecting further falls in the first quarter of this year as the economy struggles under the austerity measures and the eurozone debt crisis.

Today’s figures will leave chancellor George Osborne open to further criticism from Labour and the unions that his austerity measures are choking off the economy.

The decline in manufacturing will come as a particular blow because the sector was central to the Government’s plans to rebalance the economy by exporting more and importing less.

It comes as Bank of England governor Sir Mervyn King warned last night that the UK’s economy faces an “arduous, long and uneven” road to recovery and said falling inflation meant there was more scope for further emergency money printing.

The recession is expected to be mild compared with the slump of 2008/09, when output dropped by more than 7 per cent.

Today’s figures mean the Bank of England is increasingly likely to inject billions of pounds into the UK economy through quantitative easing in February, after declining to do so earlier this month.

Minutes from that meeting showed the Bank’s Monetary Policy Committee found that “substantial” risks to the UK economy remained and it will be some time before uncertainties surrounding the risks are resolved.

These uncertainties included how strongly UK output growth would recover in the second half of 2012 and whether euro zone governments would be able to tackle their debts and balance their economies.

Mr Osborne said: “These are disappointing figures about what happened to the economy at the end of last year, but they are not entirely unexpected because of what’s happening in the world and what’s happening in the euro zone crisis.

Mr Osborne insisted the government would continue with its deficit reduction programme.

He told Sky News: “We have got the right plan, we have got to stick to it but we have got to accept that Britain’s economic problems, difficult as they are, built up as they have been over the last 10 years, have been made worse by the situation in the eurozone, by the crisis on our doorstep.”

PA