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Steady growth prompts more economy optimism

The UK economy grew by 0.5% in the three months to April, according to estimates from a leading think-tank.

The forecast from the National Institute of Social and Economic Research (Niesr) is above the 0.2% growth that official statistics for the first three months of the year showed.

But Niesr director Martin Weale said the think-tank expects the Office for National Statistics (ONS) to upgrade its first-quarter growth estimate following "buoyant" figures on industrial production released yesterday.

The manufacturing sector posted its strongest monthly growth in nearly eight years during March with a surprise jump of 2.3%.

Manufacturing output and the wider measure of industrial production rose by 1.2% across the first quarter of 2010, stronger than the 0.7% gain the ONS assumed in its initial estimate of first-quarter gross domestic product growth.

Economists said manufacturers were benefiting from stronger export demand as the weaker pound boosted competitiveness overseas.

Howard Archer, chief UK economist at IHS Global Insight, added: "This is a really spectacular performance by the manufacturing sector, which is a real shot in the arm for the economy."

Niesr agreed that the weak pound was beginning to boost the country's output, but more would be needed to restore the economy's fortunes.

"The competitive situation in which the UK economy finds itself following the exchange rate adjustments of the last two years is beginning to have a favourable effect on output although the uncertainties surrounding the signal provided by monthly data remain.

"More importantly, however, we note that a further acceleration of growth is needed if progress is to be made in closing the output gap which has opened up since the start of the depression in March 2008," the Institute said in its published forecast.

Commenting on the effect of the Greek debt crisis and subsequent bailout, it added: "The recent action in the euro area to address the financial problems of some members suggests that policy-makers are very aware of the risks that further financial shocks might lead to a double dip and this in turn increases the prospects for a stable recovery."

Jonathan Loynes, chief European economist at Capital Economics, said he believed the Gross Domestic Product estimate is likely to be revised upwards to 0.3% on May 25.

He added: "Of course, industry still has a lot of ground to make up after the deep recession - production is still down by over 10% from its peak back in 2007.

"But the various forward-looking surveys point to further solid growth in output over the coming months."