Double-dip 'still possible' despite quicker escape from recession

Official figures showed gross domestic product rose 0.3% in the fourth quarter of last year rather than 0.1% estimated last month.

Business leaders, economists and investors welcomed the news but downgrades to output figures for earlier in the recession — when the economy shrank more than initially thought — tempered the mood.

The Office for National Statistics said that a total of 6.2% of output was wiped out during the 18-month recession rather than the earlier estimate of 6%.

Adam Chester, economist at Lloyds TSB Corporate Markets, said: "I don't think we're out of the woods. Given the weak January we have had and the bad weather there is still a distinct possibility that we could dip back into the red." The pound drifted lower against the US dollar and the euro, down 0.09 cents to $1.5256 and 0.59 cents to 1.1206.

Duncan Higgins, senior analyst at Caxton FX, said: "Despite the positive news, there are still a lot of negatives built up against the pound. It will take a whole deal more than an upward revision to offset the effects of a spiralling deficit. The growth figure is still disappointing when compared with other G20 nations and recessionary pressures are far from over."

The upward revision for the fourth quarter still left growth shy of the 0.4% originally expected but it was better than revised City forecasts of 0.2%.

It was driven by new figures which showed December was far stronger than first thought.

The powerhouse service sector, which accounts for three-quarters of output and includes City firms as well as hotels and restaurants, grew by 0.5% in the fourth quarter, five times faster than previously reported.

Output from industry was lifted from 0.1% to 0.4% with manufacturing registering growth of 0.8% — twice as fast as previously thought.

Household spending rose by 0.4% over the quarter in a sign that record low interest rates and the temporary cut in VAT, which has now been reversed, worked through the economy.

The ONS said GDP in the fourth quarter of 2009 was 3.3% lower than in the same three months of 2008 — worse than the 3.2% decline reported last month.

Billionaire financier Jim Rogers said the UK was on the brink of a double-dip. "The last few months have seen a false bounce shored up by massive short-term injections of government underwriting but it can't last," he said.

"We've been applying temporary sticking plaster, not long-term cures."