The UK GDP figures for Q4 2010 have been eagerly awaited far beyond Britain’s shores, because the country is currently being seen as a laboratory experiment in what might happen when the rest of the world tightens fiscal policy. The statistics were expected to show a significant slowdown in output growth, but nothing like the drop of 0.5% in real GDP (-2 per cent quarter-on-quarter annualised) which was actually announced this morning.

Given that this has occurred just when the fiscal tightening has started to take effect, it is likely to lead to much talk about a double-dip recession. But these figures seem much too bad to be true, and not just because of the weather. The underlying growth rate of private sector GDP probably remains at around +2 per cent on an annualised basis, and it would not be at all surprising to see a sharp rebound in recorded growth in the current quarter. Nevertheless, the recovery in the UK economy, while still intact, continues to run at a less impressive pace than we are seeing elsewhere in the developed world.