Economic growth picks up extra pace

Confounding expectations of a serious slowdown, the non-oil economy grew at a faster rate in the last three months than in the first quarter of the year. Excluding the oil and gas sector, affected by several North Sea oil fields being taken out of production for maintenance, GDP grew at 0.7 per cent, up from 0.6 per cent in the first three months of 1995 and the same rate as in the last quarter of 1994.

Including the oil sector, GDP grew at 0.6 per cent, down from 0.7 per cent in the first quarter.However, distortion introduced by oil sector maintenance means the non-oil estimate is more reliable for the quarter.

"These figures mark a crucial point in the debate over the state of the economy," said Kevin Darlington, economist at Hoare Govett. "They calm fears that the slowdown would turn into something nastier."

Looking at annual rather than quarterly rates, the economy is now growing at just under 3 per cent, well down from the 4 per cent rate of growth clocked up in 1994, but still above the underlying rate of growth of roughly two and a quarter per cent.

Growth in the second quarter was driven by the service sector, which stepped up output by 0.8 per cent and accounted for more than four-fifths of the increase, according to the CSO. Construction fell significantly, reflecting the depressed state of the property and housing market. But manufacturing output, which has been flat since February, is now expected to show a small increase in the second quarter. Agriculture grew strongly at 2 per cent.

Within the service sector, particularly strong growth was chalked up by personal and recreational services, which increased by more than 2 per cent in the quarter. Distribution, hotels and catering increased by 0.8 per cent.

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