Uncertainty will make growth figures doubly controversial

Experts divided on whether the economy has recovered from last year's snowfalls

Chancellor George Osborne and his Labour shadow, Ed Balls, face a crucial test of their respective claims to economic credibility tomorrow when the preliminary estimate for economic growth in the first quarter of this year is published by the Office for National Statistics (ONS).

Although the Government concedes that the economy faces a "choppy" recovery and that the recent performance has been disappointing, even allowing for the bad weather last winter, it will be hoping that its policies have indeed restored confidence to the battered economy. Labour, by contrast, will once again be seeking to prove that the Coalition is cutting "too deep and too fast".

The growth numbers come at a critical time politically, in the run-up to key local, Scottish and Welsh elections, plus a by-election at Leicester South and the referendum on the voting system. The Commons returns from its Easter recess today, and the economy is bound to feature during Prime Minister's Questions tomorrow.

The interpretation of the data is made more tricky by the shock fall in output in the final three months of 2010. The 0.5 per cent drop was due largely to weather effects, said the ONS, with the picture otherwise "broadly flat".

Most economists expect that much of the delayed output in those months will have been made up in January and February, whether it was people postponing hair appointments, say, or late deliveries of some vital component allowing production of some manufactured goods to be finished off.

However, some pre-Christmas shopping and going out may have been lost for ever. Thus a positive growth figure of 0.5 per cent will be seen as only just making up for the snow effects, implying an otherwise stagnant economy, and one slowing from the relatively strong growth in the middle months of 2010, which, argue Labour, was down to their fiscal stimulus.

Even so, it will not be a disaster for the Government. If the figure is much lower than that, even if positive, it will imply output is now lower than it was last autumn, and in effect points to the UK having suffered a "double dip" recession, and will be a much bigger embarrassment for ministers. A growth above 1 per cent means growth is picking up again, which will help the Government maintain its credibility and hit its fiscal targets. In the unlikely event of growth reaching 1.5 per cent, pressure on the Bank of England to raise interest rates will intensify, as it shows the margin of spare capacity in the economy is lower than was thought.

Economists differ more than usual in their forecasting, a task that has become more challenging in recent years as the GDP has delivered some surprises. At the bearish end of the range, analysts at JPMorgan suggest growth of 0.2 per cent, dragged lower by the appalling state of the construction industry. While only comprising 6 per cent of GDP, it has become increasingly volatile and proved capable of moving the growth figure in unexpected directions.

A more typical assessment is provided by Howard Archer, of Global Insight, who is looking for a 0.6 to 0.7 per cent reading. He said: "Construction output saw little if any growth in the first quarter, industrial production appears to have lost some momentum; net trade will have finally made a decent contribution; investment may well have improved; consumer spending likely saw pretty muted growth and it is possible that inventories made a negative contribution."

Thoughts are even now turning to the current quarter's growth, the data for which will be available in late July. Mr Archer added: "We expect growth to moderate appreciably as the fiscal squeeze increasingly kicks in from early April and consumers limit their spending in the face of serious headwinds. Specifically, we project GDP growth to moderate to 0.3 to 0.4 per cent quarter-on-quarter through the second to fourth quarters of 2011."

Cause for celebration

A combination of royal wedding memorabilia and the hot weather helped to lift London's West End over the Easter break, with an 18 per cent rise in customer numbers on Good Friday, against 2010.

The New West End Company, which represents 600 retailers on Bond Street, Oxford Street and Regent Street, reported that during the first three days of the weekend, two million people went shopping, a 4.1 per cent increase on 2010. Some 800,000 came on Friday, dubbed "Great Friday" by the retail sector. Hotels were also reportedly doing good trade.

Sue Amis, head of home buying for Debenhams, commented: "Our Oxford Street store has seen fantastic sales of royal wedding and Union Jack memorabilia recently, which will no doubt also continue as we approach the big day."

But Vicky Redwood, of Capital Economics, said: "The wedding is likely to add to the volatility of economic data over the next couple of months, making it even harder to judge the underlying recovery."