UK GDP: British economy growing at fastest rate since 2007

Official figures show UK economy grew 0.7% in the fourth quarter bringing the annual growth rate to 1.9%

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The Independent Online

Full year growth in 2013 was the strongest in six years, but the pace of the recovery slowed in the final quarter, the Office for National Statistics has reported.

GDP grew by 0.7 per cent in the final three months of 2013, a touch down on the 0.8 per cent recorded in the third quarter.

That leaves the economy still 1.3 per cent below the level of output achieved in the first quarter of 2008, while the US and Germany have already long surpassed their pre-financial crisis output peaks.

Fourth quarter growth was also lower than implied by various industry surveys, which suggested an expansion of over 1 per cent in the three month period.

However, the ONS said GDP grew by 1.9 per cent over the full year, marking the best performance since 2007, when the economy put on 3.4 per cent. And the consensus from forecasters is that the recovery will continue to strengthen in 2014.

The figures were exactly in line with the expectations of City analysts, but some suggested that the moderation in the recovery would help the Bank of England Governor, Mark Carney, in his quest to keep interest rates on hold, despite unexpectedly rapid falls in unemployment.

 "This may help to quell murmurs of some support among [Monetary Policy] Committee members for an interest rate rise sooner rather than later," said Martin Beck of Capital Economics.

The Bank is considering how to recast its forward guidance policy on interest rates after its 7 per cent unemployment threshold came into view two years earlier than it expected.

Employment continued to grow strongly through 2013 and the jobless rate fell to 7.1 per cent in the three months to November.

Ian Brinkley of the Work Foundation said the fact that employment seems to be rising faster than output implies labour productivity is still falling. 

"We have a jobs rich and productivity poor recovery and that may not be sustainable over the medium term” he said.

There are also growing concerns about the balance of the recovery, with the Business Secretary, Vince Cable, warning earlier this week that the recovery could prove "short-lived".

The ONS reported that Britain’s services sector grew by 0.8 per cent in the quarter, sustaining the pace of the previous three months. Production grew by 0.7 per cent, up slightly on the third quarter.  

However, despite reports of a pick-up in house building, construction contracted by 0.3 per cent in the final three months, following strong growth in the second and third quarters.

Services contributed 85 per cent of the quarter’s growth. Within the sector, the strongest growth came from business services and finance.

The Treasury’s official forecaster, the Office for Budget Responsibility, expects growth of 2.4 per cent in 2014. The average estimate of other forecasters is for 2.7 per cent GDP growth.