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UK narrowly escapes triple-dip recession as GDP figures show 0.3% growth in first three months of year

Analysts warn it is premature to hail the growth of the beginning of a sustained recovery
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Britain has managed to avoid a triple dip recession after official figures revealed that the economy grew by 0.3 per cent in the first three months of the year. But City of London analysts warned that the economy was still weak and insisted that it is premature to hail the growth of the beginning of a sustained recovery.

The GDP expansion, which came as a deep relief for George Osborne, was powered by a relatively robust performance from the UK's dominant services sector where output increased by 0.6 per cent on the previous quarter. The Chancellor said the figures were evidence that the economy was healing. "Despite a tough economic backdrop, we are making progress" he said. "By continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future."

Yet, despite the growth in the last quarter, the figures from the Office for National Statistics showed that the level of UK GDP remains 2.6 per cent below its peak in the first quarter of 2008. Other economies such as Germany and the US have already recovered all the ground they lost in that crisis.

And there were warnings from City experts that the UK economy is by no means out of the woods. "The recovery still faces significant obstacles ahead, with households still experiencing falling real pay and policymakers still struggling to get bank lending to rise" said Vicky Redwood of Capital Economics. Simon Wells, an economist at HSBC, said that yesterday's numbers "don't necessarily mean that the UK has turned the corner".

Labour called the 0.3 per cent expansion "lacklustre" and urged Mr Osborne to change course. Shadow Chancellor, Ed Balls, said: "Our economy is only just back to where it was six months ago and continues the picture of flatlining. David Cameron and George Osborne have now given us the slowest recovery for over 100 years."

Nevertheless, the quarter's growth, which was higher than most estimates from City experts, will ease the pressure on the Chancellor who has come under unprecedented pressure recently to ease his austerity programme. The International Monetary Fund recommended last week that the Chancellor should slow his planned programme his cuts in order to support the recovery. Rob Carnell of the banking group ING said that, with the economy now registering some growth, Mr Osborne can "allow himself a moment of smugness". A team from the IMF will arrive in London next month to carry out the Fund's annual health check of the UK economy and there are expected to be tense negotiations with the Treasury over the Coalition's fiscal policy. These figures are likely to strengthen the Chancellor's hand in those negotiations.

Industrial production over the quarter rose 0.2 per cent, benefiting from North Sea oil output coming back on stream after disruption at the end of last year. The construction sector, however, contracted by 2.5 per cent, as building firms were hit by the freezing winter. Yet the ONS said that snowfall and cold weather in the first three months of the year had, overall, had a "limited impact" on GDP growth.

The positive figure follows a GDP contraction of 0.3 per cent in the final quarter of 2012. A further successive quarter of negative growth would have seen Britain in its third recession since the 2008.

The Chancellor's official forecaster, the Office for Budget Responsibility, expects the UK economy to grow by 0.6 per cent in 2013. That might be revised upwards slightly in light of yesterday's robust figure.