By Marcus Leach

Despite signs of recovery at the start of 2012, the UK economy was revised down to a contraction of 0.3% for the final quarter of 2011.

The Office for National Statistics (ONS) original estimates for gross domestic product (GDP) showed a contraction of 0.2%.

The adjustment is, according to the ONS, down to the revision on the transport and communications and business services and finance sectors.

"The downward revision to -0.3% is certainly disappointing and weakness in the manufacturing sector is largely responsible, as government and household expenditure remains restricted," Richard Driver, analyst for Caxton FX, said.

"On the plus side, the UK’s current account deficit has fallen sharply and the GDP data is from the end of last year, which is of limited significance now as forward-looking data is of far greater relevance.

"Today’s figure turns up the heat somewhat on the Q1 2012 GDP figure but we remain confident that we will see the UK economy bounce back. Next week’s March PMI figures will be crucial if sterling is to push on from current levels, the possibility of further UK QE really needs to be taken off the table.

"You get the feeling that the market had pricing in downside risks with regard to this morning’s GDP figure as sterling had already suffered across the board in the build-up to the release.

"MPC doves Posen and Miles will feel vindicated in their calls for yet more QE, though we suspect upside risks to inflation will keep the remaining hawks in wait and see mode."

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