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City braced for fresh contraction after downbeat December

Suspicions that UK output declined in the final quarter of 2012 were fuelled despite a narrowing in the country's trade deficit.

The gap for goods and services of £3.5bn in November was better than £3.7bn in October but economists said without a bigger improvement in December net trade will act as a drag on GDP in the fourth quarter.

Experts in the City have been on standby for a fresh contraction in GDP after disappointing activity figures from the services sector in December.

David Kern, chief economist at the British Chambers of Commerce, said: "Although the deficit has fluctuated over the course of 2012, the average of £3bn per month is too large and shows that we are not yet seeing sufficient progress in rebalancing Britain's economy towards net exports."

The Office for National Statistics (ONS) said total exports in goods alone increased by £700m or 2.9% to £24.8bn in November, while total imports rose by £400m or 1.1% to £34bn.

The slight narrowing in the deficit was driven by an improvement in the balance with European Union countries - in particular Germany - after a 23% jump in exports in the month. The UK's deficit with non-EU countries was virtually unchanged at £4.5bn in November.

Martin Beck, an economist at Capital Economics, said: "November's trade data means we continue to think that "triple-dip" will emblazon the headlines when the first estimate of GDP is released on January 25.

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"And the weakness of the eurozone economy means that any support to the economy from the external sector is a distant prospect."