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UK annual growth weakest since early 2013

The U.K. economy posted growth in line with expectations in the fourth quarter, according to preliminary estimates from the Office of National Statistics (ONS), but annual growth slowed to the lowest level in almost three years.

The U.K.'s gross domestic product (GDP) expanded by 0.5 percent in the three months from October to December, from the previous quarter, in line with expectations from analysts polled by Reuters.

Year-on-year, the economy grew 1.9 percent, the lowest since the first quarter of 2013. U.K.

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The ONS said output increased in two of the main industrial groupings within the economy. Services increased by 0.7 percent and agriculture increased by 0.6 percent.

In contrast, industrial production decreased by 0.2 percent, while construction output also decreased by 0.1 percent.

U.K. Chancellor George Osborne said in a statement issued by the Treasury that "despite turbulence in the global economy, Britain is pushing ahead."

"With the risks we see elsewhere in the world, there may be bumpy times ahead – so here in the U.K. we must stick to the plan that's cutting the deficit, attracting business investment and creating jobs," he added.

The Bank of England's (BoE) interest rate-setting committee will certainly watch the data with interest, along with the unemployment rate and inflation data as it assesses the right time to increase interest rates.

Inflation is still far from the bank's target of 2 percent (consumer prices rose by 0.2 percent in the year to December 2015) meaning that the bank could keep interest rates lower for longer in a bid to increase spending and stimulate growth.

Other factors that could unsettle economic sentiment is the prospect of a forthcoming referendum on the U.K.'s membership of the European Union (EU) and potential "Brexit" if the public votes to leave the bloc.

Chris Williamson, chief economist at Markit, which publishes monthly purchasing manager's indexes (PMI) surveying business and services activity, said that the upturn in growth in the fourth quarter "masks an unbalanced economy and a slowing pace of expansion....Survey data also point to a further loss of momentum in December," he said in a statement.

"Uncertainty over 'Brexit', weak overseas growth and financial market volatility are all creating an unsettling business environment and point to downside risks to the economy in 2016," he added, factors which could affect the BoE's decision-making.

"The coming year could easily see the pace of economic growth slow further from last year's 2.2 percent expansion, and the chances are growing that we will see yet another year in which interest rates are left at their record low of 0.5 percent," he said.

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