|Britain has escaped an unprecedented triple-dip recession after the economy grew by a forecast-busting 0.3pc in the first three months of the year.
The pound jumped 1.2pc against the dollar to $1.5450 on hopes of a nascent recovery and as traders speculated that the better-than-expected result would deter the Bank of England from relaunching quantitative easing next month.
Economists had predicted growth of 0.1pc. with several warning that the economy would slip into its third recession in five years after the 0.3pc decline at the end of 2012.
In the event, solid 0.6pc growth in the powerhouse services sector carried the UK to its best performance since the Olympics. Overall, for the 12 months to March the economy grew 0.6pc.
The Government was careful not to be complacent. George Osborne said: “I can’t promise the road ahead will always be smooth, but Britain is recovering and we are building an economy fit for the future.”
Vince Cable, the Business Secretary, warned that the figures were only “modestly encouraging” and pointed to “serious issues” over weak lending to small businesses, the deep recession in the construction sector, and disappointing exports.
The Office for National Statistics figures, which could yet be revised, showed Britain performing far better than expected by the Government’s own forecaster – the Office for Budget Responsibility. The OBR had pencilled in 0.1pc growth for the quarter, and is predicting just 0.6pc for the whole year.
Other economists revised their estimates in the wake of the data, with IHS Global Insight’s Howard Archer increasing his full-year forecast from 0.7pc to 0.8pc.
Andrew Goodwin, economic advisor to the Ernst & Young ITEM Club, said: “We’re optimistic that this will mark the beginning of a more sustained recovery after several false starts over the past 18 months.
“The Government’s various schemes around housing should help to stabilise the slumping construction sector, while struggling manufacturers will benefit from the weaker pound and emerging global recovery.”
The surprise in the headline number masked weaknesses outside services. Slumps in manufacturing and construction continued. Manufacturing activity shrank 0.3pc while construction suffered a 2.5pc decline, putting them respectively 10pc and 18pc below their pre-crisis highs.
By contrast, services – which includes retailers and banks accounts for three quarters of national output – has fully recovered and is now 0.8pc above its pre-rcession peak. Hotels and restaurants performed well in the quarter, and there was a 1.4pc pick-up in the transport and communications sector.
The economy as a whole remains 2.6pc below its high in early 2008 – confirming that the recovery is the slowest in more than a century.
HSBC economist Simon Wells said: “[Growth] is very welcome because it means the UK has avoided the 'triple-dip’ and any associated dent to confidence. But there is no escaping the fact that underlying growth remains weak.”
He added that signs of eonomic life should also give the Bank “breathing space” to leave QE unchanged at least until July.