Hopes that the global slump is ending and that recovery is taking firm hold have been reinforced as markets enter the second half of the year on a high after sharp gains in the past quarter.

Stock markets in the West have leapt over the past three months, as upbeat investors bet on a global economic resurgence.

The pound has also fought back from steep losses as optimism grows that Britain’s recession will end soon. Sterling’s overall value is up by 10 per cent over the past three months.

Investors’ rising spirits are emphasised by a jump of more than two fifths in the MSCI World Index of stock markets across leading economies since it plumbed a low on March 9. The index has racked up gains of more than 20 per cent in the past quarter, registering its best showing since 1998.

In London, the FTSE 100 index has rallied by more than 9 per cent in the past quarter and stands 22 per cent above its nadir reached on March 3. Markets succumbed to a bout of jitters yesterday, however, as the exuberance was challenged by George Soros, the billionaire speculator.

Disappointing economic news underlined the fragility of recovery prospects, helping to leave the FTSE down by more than 1 per cent on the day. The Dow Jones industrial average also suffered a fall of about 1 per cent.

Mr Soros predicted that the United States would endure a “stop-go economy . . . As markets revive, fear of inflation will drive up interest rates, which will choke off recovery,” he said.

Nervousness that Britain’s upturn could be weak and prone to stall was fuelled by GDP figures showing a far steeper first quarter (Q1) slump than previously reported. The economy is now estimated to have shrunk by 2.4 per cent, its worst contraction for 50 years, rather than the 1.9 per cent officially estimated a month ago.

The figures revealed a far graver decline in the services sector, by 1.6 per cent, against a previously reported 1.2 per cent contraction.

Worries that the economy would remain frail were reinforced by the poor state of household finances. Consumer spending in Q1 tumbled by 1.3 per cent, in its sharpest fall since the end of 1980. The drop came as household disposable incomes fell by 2.4 per cent, leading earners to cut their savings to shore up spending power. The proportion of income saved fell to only 3 per cent.

In the US, consumer confidence also suffered a steep slide in June, while the latest snapshot of America’s stricken housing market showed scant signs of any revival in home values.

In Europe, anxieties over conditions grew as the 16-nation bloc slid into deflation for the first time, with its headline inflation rate dropping to minus 0.1 per cent last month.

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