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Economy's fragile recovery brings fresh warnings

The threat of recession has gone, but the UK's recovery remains fragile with the economy growing just 0.3pc in the three months to the end of April, according to the National Institute of Economic and Social Research (NIESR).

The latest GDP figures from the National Institute showed a slowdown in month-on-month growth, which it said demonstrated a "picture of continued weakness in the UK economy".

The NIESR said that although growth was likely to remain sluggish, the threat of recession was over.

Simon Kirby, an economist at NIESR, said the figures should not be "interpreted simply as a slowdown", saying the previous month's figure had been "distorted" by the bounceback from the snow-hit final quarter of last year.

Its figures also made no allowance for the extra public holiday in April as a result of the royal wedding, which has already been highlighted as potential negative for growth.

The NIESR figures came on top of disappointing industrial production data from the Office for National Statistics, which showed output rose at 0.3pc in March against economists' forecasts for a 0.8pc increase.

Manufacturing output figures at 0.2pc also came in below forecasts, raising doubts about the ability of the British economy to meet current growth expectations.

"With UK exports to non-EU countries languishing, British manufacturing is now at risk of backsliding on the real gains the industry has made over the last 18 months," said Mark Lee, head of manufacturing at Barclays Corporate.

"It has never been more important for trade bodies, banks, businesses and Government to push for far more UK products to be sold in the developing world. This has to be an absolute priority for the recovery to remain on track," added Mr Lee.

Manufacturing output figures at 0.2pc also came in below forecasts, raising doubts about the ability of the British economy to meet current growth expectations.

Analysts at HSBC said the main "culprit" for the lower than expected rise in industrial production was the oil and gas industry with maintenance work in the sector failing to increase at the rate the City had been expecting.

HSBC said the weakness could be "exceptional", but warned that the "trend is not in doubt" given the Government's increase in the Budget of taxes on the oil and gas industry.

"With the recent introduction of additional taxation in this particular area of the economy forcing companies to re-evaluate the profitability of certain facilities, we are far from convinced that the sort of decline seen during the first quarter will prove to be a truly unique event," said the analysts.

The manufacturing figures were largely put down to low domestic demand by Nida Ali, an economic advisor to Ernst & Young's ITEM Club.

"Yesterday's trade figures revealed that goods exports grew very strongly in the first quarter, so today's weak figure for manufacturing suggests that domestic demand in Q1 was exceptionally weak.

"This is a genuine cause for concern and adds to the uncertainty regarding the outlook," she said.

Ms Ali added there was "little momentum" for growth. The International Monetary Fund has warned that the UK's austerity measures will take between 0.5 to 0.8 percentage points off economic growth over the next year.

In its latest report on the outlook for Europe's economies, the IMF cuts its forecast for UK economic growth, which it said would be "restrained", estimating GDP growth this year of 1.7pc and 2.3pc for 2012.

The IMF's projections compare to a Bank of England estimate for 2011 GDP growth of close to 2pc and a forecast for 2012 of 2.5pc, showing the continued uncertainty.

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