U.K. exports picked up in the second quarter, helping trade contribute to the economic expansion by the most in four years.
Exports rose 3.9 percent from the previous three months, while imports gained just 0.6 percent. Gross domestic product increased 0.7 percent in the period, including a 1 percentage-point addition from net trade, the Office for National Statistics said in London on Friday.
The report also showed that consumer-spending growth eased slightly to 0.7 percent and the pace of government expenditure held at 0.9 percent. Business investment increased 2.9 percent on the quarter, the most in a year, and was up 5 percent from a year earlier.
Britain’s strengthening economy and accelerating wage growth are pushing Bank of England policy makers closer to their first interest-rate increase from the current record low. While Governor Mark Carney has said tighter monetary policy is on its way, market volatility and a weaker global outlook sparked by China’s currency devaluation have clouded the timing for central banks to step back from emergency settings.
“For all the talk of weakness in our key trading partners and strength in the currency, this is a very strong number from exports,” Liz Martins, an economist at HSBC Bank in London, said in a Bloomberg Television interview. “There’s been some turmoil and from the market perspective, expectations have been pushed back a bit, but I think it’s possible that some of those expectations have been overdone and we still look for February” for the BOE to start raising interest rates.
The pound fluctuated after the data were published and was trading at $1.5377 as of 12:32 p.m. London time, down 0.2 percent from Thursday.
While the economy has regained the ground lost from the recession, GDP per head is about 0.1 percent below its previous peak in the first quarter of 2008, the ONS said.
However, the report suggests that the rebalancing of the economy, long sought by Prime Minister David Cameron, may be starting. Exports surged 8.1 percent from a year earlier, the most in four years.
Overall U.K. growth continues to be led by services, the largest part of the economy, which expanded 0.7 percent, the same as the ONS’s previous estimate. Production growth was revised down to 0.7 percent from 1 percent.
A drop in oil and food prices has kept the U.K. inflation rate close to zero for much of the year. That’s giving Britons scope to spend and fueling concern among some policy makers that inflation pressures may be brewing.
Still, British exporters face a drag from sterling, which has risen 4.8 percent on a trade-weighted basis this year. The recent turmoil in financial markets, driven by concerns on Chinese growth, has led some economists to warn of a weaker global outlook.
“The pound’s recent appreciation and the continued weakness of demand in some export markets such as the euro zone and China suggest that net exports are not about to play a sustained role in supporting the economic recovery,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Nonetheless, with growth in households’ real incomes set to remain supported by low inflation, building wage growth and strong job creation, we continue to think that the economic recovery will sustain its current pace in the second half.”
Inflation is the theme at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyoming, this week. Officials and economists will also discuss the market impact stemming from China’s slowdown, which have cast doubt on whether the Fed will raise rates next month.