Modest return to growth likely but figures expected to be flat

The strength of the UK’s economic recovery will come into sharp focus this week as critical figures reveal whether Gross Domestic Product has bounced back from a shock decline at the end of last year.

Economists expect GDP – a broad measure for the total economy – to have grown by around 0.6 per cent in the three months to March following the surprise 0.5 per cent contraction in the final quarter of 2010.

But analysts have warned a return to growth will not mark the end of the economy’s woes as anything less than one per cent will be disappointing.

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They believe the figures will show that the average growth rate over the last two quarters was broadly flat.

The figures, released by the Office for National Statistics on Wednesday, will put the Government’s tough austerity measures back under the spotlight and suggest whether the economy can withstand the fiscal squeeze.

Policymakers at the Bank of England are awaiting the figures to help to determine whether the economy is strong enough to withstand a rise in interest rates as inflation continues well above the Government’s two per cent target.

The severe weather in December was blamed for the unexpected reversal in GDP in the three months to December, though activity would have been flat without the Arctic conditions.

The weakness raised doubts over the timing and size of Chancellor George Osborne’s £81m package of spending cuts and VAT rise from 17.5 per cent to 20 per cent.

Wednesday’s figures are a preliminary estimate, which have been heavily revised in the past.