U.K. Overcomes Record Slump With 0.8% Quarterly Growth: Economy
The U.K. has completely recovered the output lost during the financial crisis and is on track to be the best-performing Group of Seven economy this year.
Gross domestic product expanded 0.8 percent in the second quarter, pushing output above its previous peak in the first three months of 2008, the Office for National Statistics said today in London. The increase was the same as in the first quarter and in line with the median estimate in a Bloomberg News survey.
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.
“We remain optimistic on the scope for the U.K. economy to maintain its current growth spurt,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. Britain “can look forward to another couple of years of robust growth and only gradual rises in interest rates.”
GDP between April and June was 0.2 percent above its pre-crisis level after six consecutive quarters of expansion. Output was 3.1 percent higher than a year earlier, the fastest annual pace since the final three months of 2007.
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 both rose 1.3 percent.
While services are 2.9 percent above pre-recession levels, other sectors still have ground to make up.
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. The estimates are based on 44 percent actual data.
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 of the early 1930s. The slump has left the economy more than 10 percent smaller than economists were forecasting on the eve of the recession.
With real wages continuing to fall, economic growth has yet to buoy the government in opinion polls less than 10 months before the election. Cameron’s Conservatives were trailing behind the Labour opposition by 35 percent to 38 percent in a YouGov Plc survey published today.
In public comments today, ministers were careful to avoid triumphalism, with both Cameron and Chancellor of the Exchequer George Osbornegiving credit for the recovery to the “hard work” of British voters.
While the return to pre-recession output represented a “major milestone,” there is still “a long way to go,” Osborne said in a statement. “The Great Recession was one of the deepest of any major economy and cost Britain six years.”
For Labour, economy spokesman Ed Balls said most households are still under pressure. “People are not only worse off than at the last election, they’re still getting worse off now, and this chancellor doesn’t seem to understand the challenge,” he told the BBC.
The ONS said the length of the recovery could change when it overhauls the way it measures the economy later this year.
With the growth rebound assured and the labor-market recovery in train, BOE 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 panel has held the key rate at a record-low 0.5 percent since March 2009.
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.
To contact the reporter on this story: Jennifer Ryan in London at firstname.lastname@example.org