The government will stick to its deficit-cutting plan, Chancellor George Osborne said on Wednesday shortly after data showed the economy contracted by 0.2 percent in the fourth quarter of 2011.

Britain has substantial debts and if we don't deal with those debts our economic problems will be substantially worse. And what we were reminded of this week is that the rest of the world is also facing real economic problems and countries that aren't dealing convincingly with their debt face worse economic prospects than we do, Osborne said.

So I think we've got the right plan, we've got to stick to it, but we've got to accept that Britain's economic problems, difficult as they are, built up as they have been over the past 10 years, have been made worse by the situation in the eurozone and by the crisis on our doorstep.

(Reporting by Adrian Croft, editing by Estelle Shirbon)