Output and sales figures offer hope

By David Milliken and Fiona Shaikh

LONDON (Reuters) - A clutch of better-than-expected economic data on Tuesday suggested Britain may have come through the worst of the recession, but signs the labour market remains in poor shape dampened optimism.

Manufacturing output recorded its smallest monthly fall in more than a year in March, pointing to a possible end in prospect for the sector's contraction after the worst calendar quarter since records began.

Leading economic think-tank NIESR said there were signs the economy stabilised in April, which along with news of a jump in retail sales and a marked slowdown in house price falls, boosted hopes Britain may be starting to emerge from recession.

However, firms continued to lay off workers and data rushed out a day early after a leak showed the international ILO jobless rate hitting 7.1 percent in the three months to March -- the highest since the Labour government took power in 1997.

The number of people without a job rose by 244,000 on this measure to above 2.2 million -- the biggest rise since the downturn of 1981 and reinforcing fears the jobless toll could hit 3 million by next year.

And a drop in bankers' bonuses this year meant earnings in the three months to March fell for the first time on record.

"The labour market definitely has further to weaken, and further job losses over the course of this year could well give another leg down to spending in the UK, damaging the prospects for a sustained recovery," said Colin Ellis, economist at Daiwa Securities.

The economy shrank by 1.9 percent in the first three months of this year, the steepest fall in 30 years.