Figures show rise from recession

Forecasters expect modest 0.2% growth for the third quarter of 2009 after five quarters of economic contraction.

The return to positive growth should be led by a recovery in the UK's dominant services sector, despite shakier conditions among manufacturers and a difficult high street climate.

But UK output has shrunk by more than 5% during the period and unemployment will continue to climb while the economy makes up the gap.

Government borrowing is also set to soar to a record £175 billion this year to pay for spending plans and higher benefit bills - which will eventually have to be tackled with spending cuts and tax rises.

The Ernst & Young ITEM Club says the economy is likely to show modest growth in the second half of this year because consumers will bring spending forward to avoid VAT hikes next year.

While sectors such as the car industry have also benefited from the scrappage scheme this is another temporary measure and GDP could struggle to hit 1% next year, ITEM predicts. Chief economic adviser Peter Spencer said: "The outlook is certainly looking more positive than the last year but it is going to be a bumpy ride, particularly once the Government starts to cut back."

The figures will be welcomed by policymakers who have pulled out all the stops to combat recession since the banking crisis began - such as record low interest rates, printing money through quantitative easing and stimulus moves such as the temporary VAT cut.

But a former Bank of England rate-setter launched an attack on Governor Mervyn King last month for failing to act earlier to combat recession. The Bank's Monetary Policy Committee held rates at 5% between April and October last year due to inflation concerns.

Labour market expert David Blanchflower - who sat on the MPC until May - said the committee was too focused on models rather than concentrating on warning signs over a looming slump.