GDP figures to keep UK on roll

Run of upbeat economic news could be continued by surprise revision on growth
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The Independent Online

Stronger growth could add to the UK's barnstorming run of upbeat news this week when the Office for National Statistics (ONS) publishes its second estimate of the economy's advance between April and June.

Initial estimates showed a 0.6 per cent rise for the wider economy in the second quarter – twice as fast as the first three months.

While most believe the ONS will keep its forecasts unchanged, others think the steady stream of better news – stronger manufacturing growth, rising car sales and confidence fuelled by rising house prices and the better weather – increase the chances of a pleasant surprise.

Since the ONS's first estimate a month ago, construction growth has been has been revised up from 0.9 per cent to 1.4 per cent.

Investec chief economist Philip Shaw said the ONS's assumption of a 0.1 per cent decline in the UK's dominant services sector in June may well have been overcautious given the strength of industry surveys over the month.

"On balance, we expect a small upward revision to GDP to 0.7 per cent," Mr Shaw said.

But stronger growth may also further convince markets that the Bank of England will be forced to raise interest rates well before 2016, when it forecasts unemployment to fall to 7 per cent.

The detailed figures published with the latest growth estimates may also give new Bank Governor Mark Carney cause for concern as a rebalancing of the economy towards exports and investment remains a distant prospect.

Household spending – which accounts for around 60 per cent of the economy – is set to rise for the seventh quarter in a row, while business investment lags 20 per cent below its pre-recession peak.

ING Bank economist James Knightley warned: "The consumer is running pretty much on empty as wages have been lagging behind inflation for more than five years, although there has been some help from the rise in income tax thresholds as well as at the top end of the spectrum from the cut in the top rate of income tax to 45 per cent."

Capital Economics added that consumers have been "driving the recent economic renaissance".

In a note, Capital said: "We suspect that household spending was responsible for the lion's share of Q2's increase."