A chambermaid prepares the bed of a guest room in a hotel in London. Growth last... Read More
The U.K. economy has completely
recovered the output lost during the financial crisis after
growth powered ahead for a sixth consecutive quarter. Gross domestic product expanded 0.8 percent between April and June, pushing output 0.2 percent above its previous peak in the first three months of 2008, the Office for National Statistics said today in London. The increase followed a 0.8 percent gain in the first quarter and was in line with the median estimate in a Bloomberg News survey of 36 economists.
The figures may provide a boost for Prime Minister David Cameron as he seeks re-election in less than a year, and maintain pressure on the Bank of England to begin raising interest rates. The International Monetary Fund raised its U.K. growth forecast yesterday to 3.2 percent, putting Britain on course to expand at almost twice the pace of the U.S. this year.
“There’s clear momentum behind the economy and there’s nothing obvious out there that suggests a sudden slowdown in the next few months,” said Peter Dixon, an economist at Commerzbank AG in London. “The bank’s going to have to edge down its estimate of spare capacity in the economy and that may be one of the factors that supports the case for dissent.”
The pound was little changed after the report and was trading at $1.6983 as of 9:37 a.m. in London.
Growth last quarter was led by services, the largest part of the economy, which expanded 1 percent, the most since the third quarter of 2012. Business services and finance along with distribution, hotels and restaurants each rose 1.3 percent, with the latter category being boosted largely by retail sales.
Construction Slump
While services are 2.9 percent above pre-recession levels, other sectors still have ground to make up.Today’s report showed industrial production rose 0.4 percent in the second quarter, with manufacturing gaining 0.2 percent. Construction fell 0.5 percent, due to a drop in output in May. Building output is forecast to have grown in June, the ONS said.
GDP rose 3.1 in the second quarter compared with a year earlier, the fastest annual growth since the final three months of 2007. Today’s figures are the first estimate of growth for the quarter, and are based on 44 percent actual data and 56 percent ONS forecasts.
Britain is the second-last among G7 countries to fully recover from the turmoil -- output in Italy remains at a 14-year low. After shrinking 7.2 percent during the 2008-09 recession, the U.K. economy struggled to gain traction until last year. The 65 quarters taken to return to peak GDP is longer than any of the previous five recession-recovery cycles over the past century, including the Great Depression.
‘Major Milestone’
Chancellor of the Exchequer George Osborne said the return to pre-recession output represented a “major milestone” for the British economy. “But there is still a long way to go -- the Great Recession was one of the deepest of any major economy and cost Britain six years,” he said in a statement.Britain’s rebound has yet to buoy the government’s standing in voter opinion polls with less than 10 months to go before the election. Cameron’s Conservatives were trailing behind the Labour opposition by 33 to 36 percent in a YouGov Plc survey published July 16.
With the growth rebound assured and the labor market recovery in train, Bank of England policy is shifting focus to the first interest-rate increase in seven years.
A new quarterly forecasting round may split the Monetary Policy Committee for the first time in three years as at least one its members pushes for higher rates next month, some economists say. The nine-member committee has held the key rate at a record-low 0.5 percent since March 2009.
‘Extraordinary Forces’
Governor Mark Carney said this week that while the economy was on the mend, “extraordinary forces” weighing on the recovery supported the case for gradual and limited interest-rate increases.Bank staff see the pace of growth easing in the second half as world growth slows, the housing market cools and an appreciating pound raises the cost of British exports.
The risks facing the economy were underlined yesterday when the IMF cut its global growth forecast. Unilever, the maker of Dove soap and Lipton tea, reported second-quarter revenue growth that missed analysts’ estimates as Asian emerging markets continued to slow.
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