The UK’s recovery was even faster than orginally thought between April and June as a surge in exports helped the economy expand 0.7 per cent, official figures revealed yesterday.
The Office for National Statistics revised its headline growth figure up from its original 0.6 per cent estimate, already twice as fast as the 0.3 per cent advance seen in the first quarter of 2013.
Encouragingly for hopes of a rebalancing of the economy towards trade and investment, exports jumped by an impressive 3.6 per cent between April and June. Net trade contributed almost half of the GDP growth over the quarter, adding 0.3 percentage points.
While good news for the Chancellor George Osborne, pictured, the latest signs of improved growth put further pressure on the Bank of England’s new forward guidance policy. Governor Mark Carney has pledged to hold interest rates at their record low of 0.5 per cent until the unemployment rate falls to 7 per cent, which the central bank estimates will not happen before 2016.
But City analysts said that the latest positive GDP figures made it more likely the bank would raise rates sooner as unemployment falls more quickly. Money markets are pricing in a rate rise in March 2015.
Simon Wells, the chief UK economist at HSBC, said: “While welcome, it could add to the difficulties the Bank of England is having in convincing financial markets about its forward policy guidance. Things could get even more difficult as the Bank’s forecast for Q3 growth of 0.5 per cent looks a little low to us.”
Economists rushed to lift their growth forecasts in the wake of the figures. Investec’s Philip Shaw now expects growth of 1.3 per cent this year, twice as fast as the Office for Budget Responsibility’s 0.6 per cent estimate in March. “This is hardly boom territory, but by the standards of recent years growth at this pace would be very welcome,” he said.
Business investment, which has slumped by more than 20 per cent since 2008, also showed signs of life, growing by 0.9 per cent. Workers’ pay jumped by 2.4 per cent, the highest quarterly increase since 2000, although the ONS said this was partly due to high earners delaying bonus payments from the first quarter to take advantage of the cut in the top income tax rate.
Household spending rose 0.4 per cent in the second quarter, the seventh quarterly rise in a row, contributing around a third of the quarter’s growth. Despite the Chancellor’s austerity drive, government spending was up 0.9 per cent.
Colin Edwards, an economist at the Centre for Economics and Business Research, said: “This growth is unlikely to go on indefinitely. Once the next election is in the rear-view mirror, the new government will be left with the same task of revisiting belt-tightening in earnest, acting as the drag on growth.” The upward revision was also driven by a better-than-expected performance from the construction sector, which rose 1.4 per cent, up from the ONS’s first estimate of 0.9 per cent.
In a further possible hopeful sign for Britain’s exporters, German GDP figures yesterday showed a healthy increase in domestic demand.
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