GDP figures expected to prompt fear of fresh dip

FEARS of a potential double-dip recession could flare again this week as new data is expected to show Britain's economic recovery slowed to a crawl in the final three months of 2010.

GDP numbers tomorrow are expected to show that economic growth edged up between just 0.2 per cent and 0.4 per cent.

That compares with 0.7 per cent and 1.1 per cent in the previous two quarters, and will be taken as further evidence that the recovery is highly fragile and vulnerable to the ongoing public sector cuts.

It is also feared that December's terrible weather may have meant the economy actually came to a virtual standstill, with zero growth, in the run-up to Christmas.

Economists said it will also mean a continuing dilemma for the Bank of England, being criticised for chronic inflation but worried that increasing interest rates from historic lows will derail the recovery.

Howard Archer, economist with IHS Global Insight, said much attention would also focus on when the minutes of the January meeting of the BoE monetary policy committee (MPC) are released on Wednesday "to see if their finger is tightening on the interest rate hike trigger".

Archer forecasts Q4 GDP growth of 0.4 per cent, meaning that Britain's economy grew 1.6 per cent overall in 2010 after contracting just under 5 per cent in 2009. He added: "Considerable uncertainty about just how much December's severe weather hit overall economic activity makes the GDP performance hard to call."

Last week the Office for National Statistics said December's retail sales were flat on the previous month - the worst festive performance since 1998. Shops have been warning of a difficult six months following the rise in VAT to 20 per cent.

Economists say that it is also clear construction activity, which chips in 6 per cent of GDP, slowed markedly in the final quarter of 2010.