Britain's recession is officially over as economy grows faster than expected in first quarter

The economy surged back to growth in a major boost to Rishi Sunak just a week after the Tories suffered an elections drubbing across the country.

After one of the shortest recessions on record, official figures showed GDP jumped by a stronger than expected 0.6 per cent in the first three months of this year. The figures suggested the economy may finally be gaining some momentum after years of slow growth as it emerged from the shallow recession at the end of last year.

They caught the City by surprise and sent the FTSE-100 index of leading shares powering to a new all-time high.

By mid-morning the blue chip index stood at 8,442, up around 60 points.

Today’s announcement shows the key services sector, which accounts for 80 per cent of output, growing at 0.7 per cent between January and March, while the production sector, which includes manufacturing, was 0.8 per cent higher but construction fell by 0.9 per cent.

Crucially “real GDP per head” increased by 0.4 per cent in the first quarter following seven consecutive quarters without positive growth. Chancellor Jeremy Hunt seized on the upbeat economic data and floated the prospect of interest rate cuts which would be a “massive relief to families with mortgages”, more pre-election tax cuts, and sought to argue that a Labour government would mean French-style higher unemployment.

He told Times Radio: “What’s encouraging about these figures is that... we have actually grown faster not just than France or Germany but faster than the United States as well.”

But shadow chancellor Rachel Reeves said: “This is no time for Conservative ministers to be doing a victory lap.

“Prices are still significantly higher in the shops, families are paying hundreds of pounds more on monthly mortgage bills, and the economy is forecast to grow by just one per cent next year.”

Liberal Democrat Treasury spokeswoman Sarah Olney added: “If Rishi Sunak thinks hard-hit households will be celebrating today, he is even more out of touch than we thought.”

The figures come after the Bank of England yesterday once again left its main rate at 5.25 per cent, amid growing hopes in the City of a cut in June.

With a general election set for the autumn, Mr Hunt said he could foresee interest rates cuts this year.

“The Bank of England governor says he is optimistic that we are on the right track,” he told LBC Radio.

But Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said: “The strong exit from recession may inadvertently keep UK interest rates higher for longer by giving those policymakers still worried about underlying inflationary pressures enough comfort on economic conditions to continue putting off cutting rates.”

The Bank’s monetary policy committee slightly upgraded its forecasts for GDP growth in 2025 and said inflation, 3.2 per cent in March, will be below its two per cent inflation target through 2026 and 2027. The economic news came after the Tories lost nearly 500 councillors in the May 2 local elections, the West Midlands mayoralty, the Blackpool South by-election, and Sadiq Khan easily beat Susan Hall.