I've just discovered that the slow-response is definitely related to font locking. If I type M-x font-lock-mode to toggle it off then the typing lag problem is solved.
According to the Emacs documentation: 'In Emacs 21 and later, turning on font-lock-mode automatically activates the new Just-In-Time fontification provided by jit-lock-mode.' It would appear, therefore, that just-in-time fontification is not taking place in the code block with the whole code block being fontified at once - and hence the delay. Any help to confirm this hypothesis and how to enable just-in-time fontification in the code block would be appreciated. Angus M