The recession is over - official

John Major: We are now seeing the pendulum swinging towards growth (speech to Freight Transport Association dinner)

Norman Lamont: We have got recovery under way (BBC radio interview)

Michael Portillo: Recovery may be under way (opening Commons debate on the Finance Bill)

The Chancellor, Norman Lamont, finally declared the recession over yesterday as official figures showed the first decisive growth in the economy for two and a half years.

The amount of goods and services produced in Britain between January and March was 0.2 per cent up on the previous three months, according to the Central Statistical Office. Excluding volatile production of North Sea oil and gas, the rise was 0.6 per cent.

Mr Lamont said this was the best evidence that the economy was reviving across a broad front. 'We have got recovery under way', he told BBC Radio's The World at One.

Excluding oil and gas, national output fell continuously from the third quarter of 1990 to the first quarter of last year and was then flat as the economy 'bumped along the bottom'. Output fell 3.8 per cent from peak to trough, much less than the 6.2 per cent fall in the early 1980s.

Both recessions have seen output fall for seven quarters, but the economy recovered more decisively during 1981, while this recession has ended in a further year of stagnation before recovery got under way.

John Major, the Prime Minister, said last night that the rise in output and last week's second successive monthly fall in unemployment were important indications of recovery. 'We are now seeing the pendulum here in Britain swinging towards growth,' he told the annual dinner of the Freight Transport Association.

The City found the figures slightly disappointing, with some economists doubtful that even this modest pace of recovery can be maintained in the second quarter of the year. Robert Lind, of the stockbrokers UBS, expects a 'growth pause' in the second quarter, with output rising only marginally.

In last month's Budget, the Treasury forecast a rise of 0.3 per cent in national output between the second half of last year and the first half of this year. The recovery appears to be getting under way more quickly than that, although Treasury officials emphasised it was too early to revise upwards the Budget forecast of 1.25 per cent growth for the whole year.

This caution was reflected by Michael Portillo, Chief Secretary to the Treasury, as he opened the Second Reading of the Finance Bill in the Commons. He said a string of good economic figures had forced Harriet Harman, the Labour spokeswoman, 'to change her tune and recognise that recovery may be under way'.

Hopes that recovery will be sustained were boosted by an Institute of Directors survey showing business confidence rising to its highest level since August 1988. Two-thirds of company directors are more confident about the economy than they were six months ago, compared with barely one in ten more pessimistic.

Directors said that profits, orders and volume of business were all up. They also expect to take on more employees. Today's quarterly survey of manufacturers by the Confederation of British Industry is also expected to show higher sales and orders.

The rise in national output in the first quarter included a 0.5 per cent rise in the output of service industries. The distribution, hotels and catering industries saw output rise 1.1 per cent. Manufacturing is thought to be up on the quarter, with energy output falling. The CSO estimates that the rapid pick-up in manufacturing in January and February was sustained last month.

The figures help to maintain the strength of the pound, which closed above DM2.50 for the first time in 14 weeks. But the stock market weakened on fears that the strong pound will lead to a fall in export orders by making British goods more expensive. The pound has been buoyed by the belief that no further interest rate cut is needed to get recovery going.

The International Monetary Fund yesterday warned that further interest rate cuts risked fuelling price increases. 'Any further easing of monetary policy in the United Kingdom should be resisted unless there is good reason to believe that a further cut in interest rates would not endanger the goal of containing inflation', it said in its World Economic Outlook.

The IMF predicts that underlying inflation will break through the target ceiling next year, although some economists disagree.

Michael Saunders, of Salomon Brothers, said the economy should be able to sustain several years of reasonable growth, because two and a half years of falling or stagnant output had left at least as much spare capacity as after the last recession.