GDP fall heightens double-dip recession fears

The economic recovery in the UK has been dealt a blow as the latest growth figures show a decline towards the end of last year.

Gross Domestic Product (GDP) dropped by 0.5 per cent in the fourth quarter of 2010, raising fears of a double-dip recession.

The severe winter weather is being mostly blamed for the plunge between October and December, according to the Office for National Statistics (ONS).

The dramatic contraction in GDP could seriously damage prospects for the economy over the next year, as Chancellor George Osborne rolls out his £81 billion package of spending cuts - which include hundreds of thousands of public sector job losses.

In light of the latest statistics, the Chancellor remained defiant.

He said: "These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December.

"We have had the coldest weather since records began in 1910 and this has clearly had a much bigger impact on the economy than anyone expected.

"It's notable that sectors of the economy that are less affected by the poor weather, such as manufacturing, continue to perform strongly, helping to rebalance our economy."

Alarm bells over the impact of Arctic conditions last month have been ringing throughout January, as retailers, housebuilders and transport firms revealed a slump in activity as the big freeze took hold.

Last week, the ONS revealed that retail sales in the UK suffered the worst December on record as the high street battled with freezing temperatures and heavy snowfall.

The construction blip - which boosted growth in the second and third quarter of 2010 - ended in the fourth quarter - with construction output plummeting 3.3 per cent. There was some reprieve for manufacturing, as production output rose 0.9 per cent in the quarter.

Bank of England Governor Mervyn King is expected to discuss his concerns over inflation in a speech in Newcastle this evening.