The continuing overall momentum of the economy, which stands in stark contrast to the picture of stagnant retail sales and industrial production, was welcomed by the Treasury as a good start to 1995.
It will certainly make it easier for the Chancellor to accept the case for a rise in base rates when he meets the Governor at the end of next week. After the GDP figures were released, the sell-off in the short sterling future, used by the City to bet on interest rates, suggested that the City is expecting a 0.5 per cent hike in rates by June.
Another welcome surprise was a narrowing in the trade gap with countries outside the European Union in March. At the same time, the CBI's influential quarterly Industrial Trends Survey reported that UK manufacturers had recorded the strongest improvement in export orders on record.
Howard Davies, the CBI's director-general who is shortly to become the deputy governor of the Bank of England, said that manufactured exports continued to be "the engine pulling the recovery forward".
However, he acknowledged the slowdown in the pace of output growth; other responses from industrialists in the survey suggest the weakness of the domestic economy will bring about a tailing-off in growth. The CBI believes there is still no case for an early rise in interest rates.
Services, which account for two-thirds of the economy, were responsible for its surprisingly buoyant performance in the first quarter of 1995. According to the preliminary estimate for GDP released by the CSO, industrial production went nowhere but services grew 1 per cent compared with the last three months of 1994.
With retail sales flat, this points to a strong performance by the financial and business services sector and continued expansion of transport and distribution, to add to Britain's new-found gaming fever.
The trade gap with countries outside the European Union, which the City had been expecting to deteriorate, fell back to £263m in March from the revised deficit of £371m in February. While imports stagnated, exports rose 2 per cent on February, fuelled by the best performance in oil since 1988.Reuse content