Osborne says Q4 GDP fall "disappointing"

LONDON (Reuters) - The 0.2 percent drop in Britain's economic output in the last three months of 2011 was "disappointing" but not unexpected, due to weak demand in Britain's euro zone export markets, Chancellor George Osborne said on Wednesday.

Official data released earlier on Wednesday showed that the economy contracted for the first time in a year, driven by weaker factory and utilities output, as well as stagnation in the dominant services sector.

"These are disappointing figures ... but they are not entirely unexpected, because of what's happening in the world and what's happening in the euro zone crisis," Osborne said.

"Britain has substantial economic problems, debt built up over the past 10 years, and we are dealing with those, but the truth is dealing with those problems is made more difficult by the situation in the euro zone," he continued.

Wednesday's weak economic data came a day after the International Monetary Fund downgraded its forecasts for British economic growth, and official data showed that the country's net debt broke through one trillion pounds for the first time.

(Reporting by Fiona Shaikh and David Milliken)