Services add strength to start of recovery

STRONGER than expected growth in the final three months of 2009 have failed to dispel fears over a potential "double-dip" recession.

The Office for National Statistics yesterday said the UK economy grew by 0.3 per cent between October and December – compared with the 0.1 per cent initially estimated – after a bigger contribution from services firms.

But the recession is now officially the deepest on record as well as the longest after figures for previous quarters were revised down – leaving the UK's peak-to-trough slump at 6.2 per cent.

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Commentators also worried that the recovery could stall in the current quarter following the impact of VAT increases as well as January's snow chaos.

ING bank economist James Knightley called the latest numbers "encouraging", but said the current quarter had started poorly with retail sales plunging and lending data stalling.

"The momentum we had been hoping that the UK would be carrying into 2010 may be falling away already, he said.

"Some of the weakness will be weather-related, but election uncertainty and the implications for taxes and public sector employment is likely to keep sentiment and activity subdued."

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David Kern, chief economist at the British Chambers of Commerce, added: "The UK recovery remains weak, and risks of a setback to growth later in the year are still serious."

The pound was unmoved against the dollar at 1.52 despite yesterday's figure exceeding market hopes for 0.2 per cent growth. Prior to the release of the 0.1 per cent figure, forecasters had pencilled in a 0.4 per cent advance over the quarter.

But the data will relieve some of the political pressure on the Government over its stewardship of the UK through the recession as a general election looms.

Leading economists and the International Monetary Fund have backed the Government's stance on waiting before tackling the UK's ballooning deficit in recent weeks.

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Chancellor Alistair Darling said: "These are welcome figures but I cannot stress too much that we are living in very uncertain times."

The latest output figure – based on more than three quarters of the data – also confirms suspicions among many commentators that earlier estimates were underestimating the performance of the economy.