Output growth heads off 'double-dip' recession

The UK avoided a "double-dip" recession in the first three months of 2010 with output growth of 0.4%, an economic forecaster said today.

The National Institute of Economic and Social Research's (NIESR) GDP estimate said the economy would have grown at an even faster rate without January's cold weather and the return of VAT to 17.5%.

The figures will be seized on by the Government as more evidence of recovery following a similar 0.4% advance seen in the final quarter of 2009 - ending the longest and deepest recession since official records began.

While NIESR's estimates have a margin of error of up to 0.2%, there is now an increasing likelihood of positive growth for the first quarter of 2010 when official estimates are released two weeks before polling day.

The estimates follow better-than-expected manufacturing figures, a return to jobs growth from the UK's services sector and predictions of a faster recovery for the country than many of its G7 rivals.

NIESR estimates that overall output is currently 1.1% higher than the end of the recession, which it puts at September last year.

But it also warned that GDP is still 5.4% lower than in early 2008 and added that the economy could take until 2012 to recover the ground lost to recession.

The Bank of England is taking no chances with the recovery and kept interest rates at their record low level today, as expected by the City.

Borrowing costs have been held at 0.5% for more than a year and £200 billion pumped into the economy as rate-setters attempted to nurse the ailing UK back to health.