Recovering car production pushed the manufacturing sector to its strongest growth in more than three years during July.

Output grew by 0.9% over the month — well ahead of forecasts and the best performance since May 2006 — the Office for National Statistics (ONS) said.

Car manufacturing grew by 10.4% during the month as experts seized on the latest signs that the ailing UK economy is emerging from recession.

Richard Ramsey from Ulster bank said the figures provide confirmation that the improvement in economic conditions reported in a number of recent surveys is now feeding through into the official numbers.

“This viewed alongside encouraging signs of output growth in the service sector makes it increasingly likely that the UK economy will return to positive growth — and officially exit recession — in the third quarter,” he said.

Car manufacturing has been boosted by initiatives such as the scrappage scheme as well as factories restarting production after shutdowns at the height of the recession.

But Mr Ramsey noted that car production is still 30% lower than a year ago and expects the government will choose to extend the existing scrappage scheme.

The second successive month of growth overall was helped by a strong performance from the chemicals, rubber and plastics industries — although the electrical, printing and publishing sectors were stuck in the doldrums.

June's figures were also revised higher but manufacturers have a long way to go to make up lost ground as output is still 10.1% lower than in July last year.

Industrial production overall — including output from mining, quarrying and the utilities — was also up 0.5% month on month.

Manufacturers have been helped by the huge stimulus to the economy given by record low interest rates of 0.5% as well as efforts to boost the money supply through quantitative easing.

Business groups urged the Bank of England to keep up the assistance at the latest meeting of the Monetary Policy Committee.

British Chambers of Commerce chief economist David Kern said: “The early stages of any upturn will be driven by a turnaround in stock levels, so it is important to maintain and reinforce the stimulus provided by quantitative easing.

“Recent falls in bank lending to non-financial firms are worrying and it may be necessary for the MPC to consider additional measures.”

Meanwhile, the National Institute of Economic and Social Research yesterday forecast that the UK economy saw its first quarterly growth since May last year in the three months to August.

It estimated there was a 0.2% rise in output in the period, reinforcing its view that the recession ended in May. The forecaster warned however a return to growth should not be confused with a full economic recovery.