The UK economy grew slightly more strongly than expected in the second quarter of the year, emphasising the gulf between Britain and the struggling eurozone.
The Office for National Statistics (ONS) confirmed on Friday that UK growth in the three months to June was 0.8 per cent, in line with its initial estimate last month. But it said that, on an annual basis, GDP growth in the second quarter was 3.2 per cent, up from its first estimate of 3.1 per cent in July.
Chris Williamson, the chief economist at the financial information provider Markit, said the figures confirmed the picture of “consistently strong growth since the start of last year”, adding there were “good reasons” to believe the pace can be sustained through the second half of the year.
The ONS also highlighted the comparison between growth in Britain and the rest of the G7 industrialised nations in the second quarter, pointing out that on an annual basis the US grew by 2.4 per cent, Germany 1.3 per cent and France just 0.1 per cent. Japan was flat while Italian GDP shrank by 0.3 per cent. The International Monetary Fund has forecast that the UK will have the strongest growth in the G7 over the year.
Eurostat announced earlier this week that the Germany economy, the keystone of the eurozone, contracted unexpectedly in the second quarter, possibly reflecting the economic impact of the Ukraine crisis.
The UK’s modest upward annual revision was a consequence of a better than previously estimated performance from the construction sector in the second quarter, with the ONS upgrading output from builders to 4.8 per cent annual growth, from 4.2 per cent initially.
However, this was offset by the statistics agency revising down its estimate for production growth to 2.1 per cent, from 2.2 per cent before.
Services once again showed strong growth, with total output up by 3.3 per cent year on year. Within that, distribution and hotels grew by 4.8 per cent, transport and communication 2.5 per cent and business services 1.5 per cent.
Despite the continued strong growth of the UK economy, financial markets pushed back the expected timing of the first interest rate rise by the Bank of England this week following dovish noises from the central bank.
Sterling has now fallen against the dollar for six straight weeks after it ended yesterday flat at $1.668. This is the first time it has done so since the fourth quarter of 2009. The pound hit a four-month low against the US currency on Thursday.
The UK 10-year bond yield also fell to its lowest level since the beginning of the month on Friday, shedding 8 basis points to close down at 2.359 per cent.
The Bank of England said this week in its quarterly Inflation Report that the level of slack in the economy had been larger than it initially believed, suggesting interest rates do not need to rise imminently to avoid a pick-up in inflation.