A strong rebound in Britain's industrial output and house price data today boosted hopes that the economic recovery remained on track during the first three months of 2010.
The pick-up in factory production in February and house prices in March suggests that unusually harsh winter weather, rather than more lasting factors, was primarily to blame for a drop in both sectors earlier in the year.
Equally, the bounce back probably represents a one-off catching-up from the weather-related slowdown rather than the start of a marked acceleration in growth, and the Bank of England left interest rates at an ultra-low 0.5 per cent.
The central bank has effectively put policy on hold since February, waiting for more clarity on how fast growth is rising and on how soon the next government will tighten fiscal policy after a national election on May 6th.
Sterling rallied to a seven-week high versus the euro after the data, which is also likely to reassure prime minister Gordon Brown as his Labour Party tries to win back supporters from the opposition Conservatives.
The Office for National Statistics said manufacturing output grew 1.3 per cent in February after January's 1.0 per cent drop, helped by a strong increase in production of food and drink, electrical and optical equipment as well as bricks and cement.
Year-on-year factory output was 1.3 per cent higher in February than a year ago, its best showing since February 2008.
"The risks of a double dip seem to be receding quite sharply. It looks at the moment like we will broadly maintain the pace of economic expansion we saw in Q4," said RBS economist Ross Walker.
Academics at Britain's National Institute for Economic and Social Research estimated, based on Thursday's data, that the economy grew by 0.4 per cent in the first quarter of 2010, the same as the official reading for the fourth quarter of 2009.
Britain only emerged from its deepest recession since World War Two during the last three months of 2009, when the economy grew by 0.4 per cent, and analysts say the recovery remains fragile.
House prices - which economists view as a major driver of consumer spending and morale - rose by 1.1 per cent in March after a 1.6 per cent fall in February, according to data from mortgage lender Halifax, part of Lloyds Banking Group.
This leaves them 9.1 per cent higher than a trough reached in April last year, though Halifax said there were now signs that the market was starting to slow - a view shared by economists.
"The Halifax data reinforces our suspicion that house prices will be erratic in 2010, and we still suspect that prices may very well be no better than flat over the year," said Howard Archer, economist at IHS Global Insight.
A slowing trend was also forecast for car sales by the Society of Motor Manufacturers and Traders, which said on Thursday that it expected sales to drop by 10 per cent in 2010, despite an annual rise of more than 26 per cent in February.
A government scheme to give drivers of older cars £2,000 to trade them in for newer fuel-efficient models ended on March 31st.
However, economists see grounds for manufacturing as a whole to strengthen. Sterling's slide of around 25 per cent since mid-2007 is slowly starting to give exports a boost, though the Bank of England has warned that demand remains weak in many European markets.
"In the medium term we expect this momentum of growth to be sustained, in part because of the cyclical recovery but also because of the weaker currency," said UBS economist Amit Kara.
Reuters