Economic growth estimate revised upwards

Britain's economy expanded at a faster pace than first thought with growth of 0.3 per cent in the first quarter of the year, official figures revealed today.

The Office for National Statistics (ONS) revised up its estimate for growth of gross domestic product (GDP) in the first quarter from an initial lacklustre 0.2%.

Strength in the manufacturing sector helped put the recovery on a firmer footing, with industrial production growth upgraded to 1.2% from the 0.7% reported last month.

Today's figures showed no upward revision to the 0.2% growth from the key services sector, which accounts for more than 70% of GDP.

But a revival in the manufacturing industry lent some much-needed support, with recent data showing the highest monthly growth for nearly eight years in the sector.

The contraction in the hard-hit construction sector was also marginally better than first feared, revised to minus 0.5% compared with a drop of 0.7% in the initial estimate.

While the improvement in GDP is still down on the 0.4% growth seen in the final quarter of 2009, it offers hopes for the otherwise stuttering economic recovery.

Economists had expected quarter-on-quarter growth to be revised up to 0.3% and said there was the potential for further revisions if the service sector is nudged higher in future estimates.

However, the bad weather at the start of the year and the reversal of the temporary VAT reduction in January held back retail and services demand in the first quarter.

Further detail on the economy in today's GDP release showed that household spending remained flat over the first quarter, compared with a rise of 0.4% at the end of 2009.

Government spending was once again a main driver, up 0.5% in the quarter.

Jonathan Loynes, of Capital Economics, said the breakdown of spending "brought little sign of the re-balancing of the economy" towards the private sector needed to maintain recovery when the public spending cuts and fiscal squeeze kick in.

"Overall, a pretty weak picture. We continue to expect growth of just 1% or so in 2010 overall, picking up only slightly to 1.5% in 2011," he added.

Net trade also came as a disappointment as import growth of 1.4% outpaced a flat performance from exports, leading to a deficit of £9.5 billion up from £8.3 billion in the fourth quarter.

Economists are expecting the recovery to pick up in the second quarter, with Howard Archer at IHS Global Insight predicting 0.5% to 0.6% growth.

But there are concerns over the impact of Government belt-tightening following yesterday's £6 billion in spending cuts and ahead of the emergency Budget on June 22.

There are also fears for the UK over troubles in Europe - a major export customer.

"We expect recovery to develop only gradually in the face of still major headwinds," said Mr Archer.

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