- GDP per capita in Britain is 0.6% above pre-recession peak
- Real disposable incomes, worker compensation on the rise
A key gauge of wealth in Britain has risen above its pre-recession peak and workers are seeing their compensation grow at the fastest pace in eight years.
New data from the statistics office shows that gross domestic product per head in the second quarter was 0.6 percent above its level in early 2008. The economy grew 0.7 percent in the period, the Office for National Statistics said Wednesday, unrevised from a previous estimate, with net trade driving the expansion.
Compensation of employees rose 4.7 percent in the three months from a year earlier, the biggest annual increase since 2007. That was led salaries and social benefits, while taxes declined. With inflation near a record low, real disposable income jumped 2 percent on the quarter, the most in three years.
The figures reinforce the view that Britain’s economy, which has grown for 10 straight quarters, is continuing to strengthen. While inflation is below the Bank of England’s 2 percent target, the momentum has prompted Governor Mark Carney to say that the time to begin raising interest rates is approaching.
“We remain upbeat about the prospects for the U.K.’s economic recovery,” said Paul Hollingsworth, an economist at Capital Economics in London. “Business and consumer confidence remains strong, credit is cheap and becoming more available, and households are yet to spend all of their windfall from lower energy and food prices.”
The pound rose 0.2 percent to $1.5176 at 10:30 a.m. London time and appreciated 0.5 percent to 73.88 pence per euro.
The data from the ONS, published in London, also showed that the economy was 5.9 percent bigger in the second quarter than the previous peak. That’s revised up from 5.2 percent. Revisions to historical data show that GDP per head regained its 2008 peak in the first quarter.
There was further good news in the balance of payments report, which showed the current-account deficit narrowed in the second quarter to 16.8 billion pounds ($25.5 billion) from 24 billion pounds in the three months through March. That equates to 3.6 percent of GDP, the smallest in two years.
The improvement was driven by trade, with the deficit in goods and services narrowing to 0.7 percent of output, the least since 1998. BOE policy makers have previously highlighted the size of the current-account deficit, which widened to a record 5.1 percent in 2014, as a potential risk to the economy.
Economists in a Bloomberg survey forecast U.K. economic growth of 2.6 percent this year and 2.4 percent in 2016. They also expect the first BOE rate increase to come in about the second quarter of next year. Still, concern about the health of China’s economy and the global recovery is helping to keeping rates at a record-low 0.5 percent for now. The BOE will announce its next policy decision next week.
In the second quarter, growth in U.K. business investment was revised down to 1.6 percent from 2.9 percent, the ONS said. Compared with a year earlier, it increased 3.1 percent. A 1.9 percent jump in exports made net trade the biggest driver of growth in the latest quarter, contributing 1.4 percentage points.