Oil price 'may hold back' recovery

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An influential think-tank this week claimed the UK economy returned to growth in April and May, suggesting the downturn may have bottomed out.

But Mr Darling used an interview with the Financial Times to warn: "I think it is important that people should not become complacent (about the recovery)."

He said he is sticking to his Budget forecast and expecting the recession to finish towards the end of this year.

The Chancellor said the volatile oil price - which this week reached an eight-month high above $73 a barrel - had "the potential to be a huge problem as far as the recovery is concerned".

"We've got to convince everyone, including some of the Gulf states who really have been badly affected by this downturn in their broader economies, it is in no-one's interest that we allow a high oil price to impede recovery," he said.

He also warned that getting banks lending again remains a problem, and that lenders are still struggling to build confidence.

"If you don't fix the banking problem, you'll never fix the wider economy," Mr Darling said.

Sterling rallied against both the euro and the dollar on Thursday after the upbeat economic forecast from the National Institute of Economic and Social Research, which estimated GDP rose by 0.2% in April and 0.1% in May.

The pound, which almost reached parity with the single currency at the end of 2008, climbed to 1.174 euros and was also up against the dollar, to 1.648.