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Recovery upgrade a boost for Osborne

George Osborne, the Chancellor, is set to receive a pre-Budget gift tomorrow with new data revealing that Britain's economy has been performing better than previously thought.

The Office of National Statistics is to publish its second estimate of GDP growth for the first quarter of the year and is widely expected to raise its initial assessment.

Last month, the ONS disappointed economists and dealt a blow to the election campaign of Gordon Brown, fighting on a platform of securing recovery, by reporting that the British economy grew by only 0.2% over the three months to the end of March. Since then, however, economic indicators have suggested that the |ONS's first estimate, which is made on the basis of comparatively scant data, may have |underplayed the extent to which the economy has bounced back from recession.

For example, while the ONS had originally thought that the manufacturing sector had grown by 0.7% during the first quarter, subsequent data has suggested that the figure may have been closer to 1.3%.

Improving business investment figures, reported last week, plus further boosts from government spending, are also likely to have helped. While consumer spending has been slower — thanks to a combination of higher VAT and the poor weather seen earlier in the year — the effect may have been overplayed.

The National Institute of Economic and Social Research, the independent think tank, has already indicated that it believes the correct figure for growth in the first quarter could be as high as 0.4%.

Such a revision would be a major boost to Mr Osborne as he continues to frame the emergency budget he is due to give in a month's time.

The Chancellor was told last week that Government borrowing last year was £7bn lower than had previously been thought, giving him slightly more room for manoeuvre on spending and taxation, and better economic growth would augment that helpfully.

Nevertheless, Mr Osborne will be acutely aware that the existing Treasury forecasts for borrowing are based on optimistic forecasts for economic growth, particularly in 2011.

Belfast Telegraph