The UK economy contracted by 0.2 per cent in the fourth quarter of 2011, shortening the odds of a double-dip.

The production sector suffered the largest drop, down 1.2 per cent, but the construction sector also contracted 0.5 per cent while the services sector was flat at 0 per cent.

The analyst consensus was for a 0.1 per cent contraction so, while the results were slightly lower than expected, there was no outright panic in the markets, with the FTSE 100 dropping 0.4 per cent to 5,729 in the immediate aftermath.

The Office for National Statistics (ONS) predicted that the public sector strike had some effect on GDP figures but stated that the impact was likely very minor.

Chancellor George Osbourne described the figures as ‘disappointing’ but not ‘entirely unexpected’ and was quick to lay the blame on the eurozone crisis.

However, Vicky Redwood, chief economist at Capital Economics, leapt on the figures as evidence that the UK is ‘probably back in recession’.

She explained, ‘Of course, we won’t know for sure whether the economy is actually back in recession until we get Q1’s figures.

‘And it is of some comfort that the CIPS/Markit business surveys were heading up at the tail-end of Q4.

‘But this might just have been a temporary improvement. Indeed, our bet is that the UK is now back in recession and that the economy will continue to contract for most of this year.’

Ranvir Singh, CEO of market analysts RANsquawk, claimed, 'The data isn't great, but it's not dire and investors will take heart from that.

'Despite the contraction, the markets sighed with relief. The pound sold off before the announcement but strengthened in the aftermath.'