Pritesh and Mansi Gandhi suffered five miscarriages before Pritesh's sister, Hiral Shah, offered to carry the baby for them.
The 32-year-old, who has a six-month-old son of her own, got pregnant through IVF at the first attempt with Mansi's egg and her brother's sperm.
She gave birth to baby Krish recently, the 'Daily Mirror' reported.
"My sister and I were always close but this has made all the difference. She is an extra special auntie and for the rest of my life I will be in debt to my sister," said Pritesh.
The Gandhis had looked into the possibility of surrogacy in foreign countries including India, Ukraine and the US but were overwhelmed by the expenses and legal wrangles involved.
They now want to encourage more infertile couples to use surrogacy in the UK rather than abroad, which can result in immigration and custody battles.
Accounts assistant Hiral said: "I witnessed all the losses which my brother and his wife suffered over the years. The handing over of baby Krish was obviously quite emotional moment for all of us."
They began trying for a baby after three years and in 2007 Mansi fell pregnant for the first time but went into early labour at just 24 weeks and lost the baby.
Doctors investigated and Mansi was diagnosed with cervical insufficiency -premature dilation of the cervix due to the weight of a growing baby - and went on to have five miscarriages.
A family meeting was called and Hiral and her husband Amish agreed to help out.
"I am sure that Krish will always have a special place for Hiral in his heart. It's a miracle baby and Hiral is a God-send for us," said Mansi.
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