UK economy shows broader, faster growth

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UK economy shows broader, faster growth

UK economy shows broader, faster growth
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Britain’s economy grew faster than expected in the second quarter of the year.

Gross domestic product expanded 0.7 percent from the previous three months.

That was better than the Office for National Statistics’ initial estimate and better than economists’ forecasts.

Suggesting a shift towards more balanced growth, British exports rose at the fastest pace since late 2011, business investment grew faster than household spending, and manufacturing output and construction were also strong.

“It does look like the recovery is becoming more self-sustaining,” said Philip Shaw, an economist at Investec.

Broad based recovery

Britain’s service sector – which makes up more than three quarters of GDP – grew 0.6 percent compared with the first quarter, as estimated earlier.

But manufacturing output growth was heavily revised up to 0.7 percent and the volatile construction sector posted a 1.4 percent rise, also much better than found a month ago.

The increase in building activity is running in parallel with an upturn in the property market, fuelled in part by a state-backed mortgage scheme that critics fear could lead to a new price bubble.

Rates riddle

In an effort to encourage spending and investment, the Bank of England said earlier this month it would not raise borrowing costs while unemployment remained above 7 percent, a level it did not expect to be breached for at least three years.

But the threshold may be crossed sooner if Britain’s recovery maintains momentum, and since the bank gave its forward guidance, the news on the economy has been predominantly upbeat.

Factories’ order books looked in their best shape for two years in August, consumer confidence and retail sales soared in July, and surveys found robust growth across manufacturing, construction and services at the start of the third quarter.

“The Bank of England is therefore facing a growing challenge of how to convince the markets and households that interest rates will not need to rise over the next three years,” said Chris Williamson, economist at financial data company Markit.