Page last updated at 15:44 GMT, Wednesday, 7 April 2010 16:44 UK

UK economy set to outpace most G7 peers, says OECD

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The key service sector is continuing to drive the economy forward

The UK economy is forecast to outstrip its G7 peers in the second quarter of this year, says the Organisation for Economic Co-operation and Development.

The OECD predicted the UK would grow at an annualised rate of 3.1% in the second quarter of 2010.

Such a rate would put the UK ahead of the US, Japan, Germany, France and Italy - but not Canada.

The British Chambers of Commerce also said the UK had avoided a double-dip recession in the first quarter of 2010.

However, the BCC warned that the UK's recovery was weak and there remained risks of setbacks in the future.

'Fragile' recovery

On a global level, the OECD cautioned that overall growth would be slower in the main industrialised nations during the first half of 2010.

"Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support," its report said.

Hugh Pym
By Hugh Pym, Chief economics correspondent

On the face of it here is some good news for the UK economy and the government defending its record.

The UK may have come out of recession later than most of the other leading economies. But now the OECD is forecasting that it will grow at a faster rate than the average for the eurozone giants, Germany, France and Italy in the first half of this year. Germany, according to the OECD, will lurch back into negative territory with falling output in the first quarter.

But the think tank says the overall picture is fragile. Continued weakness in the UK's main European trading partners will be no cause for celebration here. British exporters will find life tougher and that could dampen the UK's own growth prospects.

The British Chambers of Commerce survey of 5,500 UK businesses suggested the service sector was the main bright spot in the UK economy.

A separate report on the service sector, in the form of the purchasing managers index (PMI), suggested that it slowed down in the last month of the quarter, although that was compared to a particularly strong figure in February.

The two are not strictly comparable. Unlike the BCC, the PMI does not include retailers and also only covers the month of March.

Where the two reports do agree is that the economy is brightening, although it remains patchy and fragile.

The director general of the BCC, David Frost, told the BBC: "Any thoughts we may have slipped back have not materialised, but the recovery needs to be nurtured."

It warned that the recovery was weak and "serious risks of a setback remain", with the manufacturing sector still struggling.

Paul Smith, senior economist at Markit, which co-produces the PMI, said: "The UK recovery remains on track, with the service sector posting a pace of expansion consistent with those seen at the end of 2009."

Manufacturing orders for the first three months of this year were little higher than in the previous three months, according to the BCC, but new orders continued to fall and employment in the sector suffered a setback after an encouraging fourth quarter in 2009.

The UK economy emerged from recession in the final quarter of last year, after six consecutive quarters of contraction.

The latest official figures show the economy grew by 0.4% in the last three months of 2009, up from the original estimate of 0.1%.

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