Hopes rise for economic recovery

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Hopes were building today for a swift economic recovery after a swathe of encouraging signs suggested Britain was already on the road to growth.

As economic forecasters hailed the first quarterly growth since May last year, data also signalled some welcome cheer in the jobs market and on Britain's battered high street.

The latest report from the Recruitment and Employment Confederation confirmed the first improvement in the UK jobs market for 17 months as the fall in vacancies and pay eased.

And consumers appear to be shaking off recession gloom, as Nationwide's index found increases in confidence across all of its measures last month.

Cash-strapped Britons were meanwhile given further reason to cheer as shop prices fell last month by 0.1 per cent compared with a year ago in the first decline since February 2007.

The figures follow just a day after economic thinktank the National Institute of Economic and Social Research declared a return to growth in the three months to July.

Official manufacturing figures out yesterday also added to the mounting economic optimism, with the sector showing its strongest growth in more than three years during July.

The outlook for the UK economy has been steadily improving since the dark days of the first quarter, when gross domestic product (GDP) plunged by 2.4 per cent after the autumn financial crisis tipped the world into recession.

Figures recently revealed the contraction had eased by more than originally thought in the second quarter, with GDP down by 0.7 per cent compared with the 0.8 per cent initial estimate.

Stock markets have already bounced higher on a mounting wave of optimism, with London's FTSE 100 Index yesterday reaching its highest level so far this year.

The Dow Jones Industrial Average on Wall Street is also trading at levels not seen since last November as America's economy likewise appears to be on the mend.

While the UK faces an uphill struggle to get public finances back on track after unprecedented spending to ease recession, there was even better news on this front as reports suggested Britain may avoid the threat of a ratings downgrade.

Rating agency Moody's is expected to announce that the UK is likely to retain its triple A credit rating in view of the determination shown by political parties to rein in public spending.

Chancellor Alistair Darling said he was "confident" that the economy would see growth grow but added that he remained cautious.

Speaking at an event in Downing Street to mark the payment of Child Trust Fund vouchers to seven-year-olds, he said: "I remain confident that our economy will see growth around the turn of the year and I think that over the last few months we have seen a number of encouraging signs here and in other countries.

"But I do say to people 'This is not the time to break out the flags'. We still have to be cautious, there is some way to go yet and the key thing, as I said yesterday is we have got to see this through...to make sure we get recovery firmly entrenched and then make sure we can plan for the future."

Mr Darling added: "As we come through the recession, as it becomes more firmly established then we have got to make choices. We have got to reduce the borrowing and I have set out a plan to cut borrowing by half over a four-year period at the time of the Budget, I will return to that.

"I don't take the Tory approach that using this crisis is a blanket excuse to cut spending.

I think you have got to choose your priorities, you have got to have an eye to the long term and particularly look at those things that will mark us out in future, for example, well-qualified people coming out of university or in this case, for example, this is a way of encouraging saving and encouraging saving in the future is absolutely essential."

The Prime Minister's spokesman said there were some "encouraging signs" in today's data but Gordon Brown shared the Chancellor's view that it was "not a time for complacency".

He also said Mr Brown felt "strongly" about the need to keep the recovery going by continuing with "the appropriate level of expenditure".

Business Secretary Lord Mandelson said he believed the economy was coming out of recession but warned of the dangers of the country going into a "recessionary dip".

He told BBC Radio 4's The World At One: "I think the signs are that it is (coming out of recession), but there is always a risk of a second recessionary dip.

"Given that risk, we have to be sure that the measures and interventions that we are undertaking at the moment are continued and not withdrawn prematurely.

"This might not only risk triggering that dip but, if we were to go into that dip, it would make it harder to get out of."