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UK growth steps up a gear in second quarter

by International Commercial Investment on July 27, 2015

Source: The Telegraph

Britain’s recovery stepped up a gear in the second quarter, official figures will show this week.

Solid growth in Britain’s dominant services sector and robust oil and gas production are expected to have steered the recovery back on track after it lost steam at the start of the year.

The Office for National Statistics (ONS) is expected to say that the UK economy grew by 0.7pc in the second quarter, following growth of 0.4pc in the first three months of 2015.

The pound has strengthened against the dollar and euro in recent days after policymakers at the Bank of England suggested that interest rate rises were “moving closer”.

Governor Mark Carney has suggested that “sustained growth” of around 0.6pc per quarter will be required for the remaining “spare capacity” in the economy to be eliminated and for rate setters to start tightening policy in order to keep a lid on inflation.

Mr Carney said this month that the decision to raise rates was likely to come into “sharper relief” by “the turn of this year”. Minutes of the Monetary Policy Committee’s latest interest rate meeting showed a “number of members” on the nine-strong panel believed inflationary risks had risen.

However, Ross Walker, chief UK economist at RBS, said growth of 0.7pc would merely “recover the ground lost relative to trend in the first quarter”.

He said: “While this would provide reassurance that the economy is maintaining a steady expansion, it would not be indicative of an underlying increase in momentum.”

Analysts at Morgan Stanley expect industrial production, which accounts for around 15pc of UK gross domestic product to post a 1.1pc expansion over the quarter amid “soaring oil and gas production”.

Construction output is expected to post a 0.5pc quarterly decline, while services output, which drives around three quarters of UK output, is predicted to have grown by 0.7pc. “It looks as though both household consumption and net trade will have been important drivers of growth in the second quarter,” said Jonathan Ashworth, an economist at Morgan Stanley.

Samuel Tombs, an economist at Capital Economics, said the robust expansion suggested by surveys such as the Confederation of British Industry’s was unlikely to be “borne out fully” in the official data.

He described its predicted 0.6pc expansion in the second quarter as “a respectable figure, but certainly not one that is going to prompt the MPC to rush into raising interest rates”.

However, he pointed to more encouraging signs on productivity growth, which is the key to unlocking higher UK living standards.

“Both employment and total hours worked fell by 0.2pc in the three months to May,” said Mr Tombs. “Barring a major turnaround in June, this suggests that output per hour probably grew by about 0.8pc on the previous quarter, the strongest gain for two years. Accordingly, it would suggest that the economic recovery has entered a more mature and sustainable phase.”

International Commercial InvestmentUK growth steps up a gear in second quarter