UK recovery gains steam with 0.6% growth in Q2

LONDON: The British economy grew by 0.6 percent in the second quarter compared with the previous three month period, official figures showed on Thursday in the latest sign that Europe’s third largest economy is on a firmer footing.
The increase in the country’s annual gross domestic product, as reported by the Office for National Statistics, was double the previous quarter’s rate but in line with market expectations. Services, agriculture, manufacturing and construction industries all contributed to the quarterly rise.
Despite the increase, the UK economy is still smaller than it was before the deepest recession since the Second World War started in 2008 following an international financial crisis that had its roots in bad banking practices around the world.
Despite the quarterly rise, the British economy, Europe’s third-biggest behind Germany and France, is still around 3.3 percent smaller than at its peak in the first three months of 2008.
Still, the increase will foster hopes that the UK economy can now post sustained increases in outputs following a three-year period when it largely flat-lined despite record low interest rates and a big stimulus program from the Bank of England. The coalition government that was formed after the 2010 general election has made deficit-reduction the primary focus of its goals but the austerity measures that have been pursued have weighed on economic activity. The next election is expected in May 2015.
“Britain is on the mend, but we’ve got to stick with the plan because there’s still a long way to go,” British finance minister George Osborne told Sky News.
Excluding last summer’s boost from the London Olympic Games, the quarterly rise was the strongest in almost two years, according to Chris Williamson, the chief economist at Markit.com.
“Prospects look good for a continuation of the recovery in the third quarter, with consumers and businesses both helping drive the upturn,” he said.
There have been some false dawns before and economists urged caution.
Vicky Redwood of Capital Economics said the British economy still faces headwinds, with pay levels falling for many, bank lending flat and the government pursuing austerity measures designed to get the British public finances back into shape.
“Of course, we shouldn’t get too carried away,” she said. “Even a 0.6 percent quarterly rise is fairly mediocre after such a deep recession.”
Nonetheless, the increase in GDP will likely give the UK government a bit of breathing space as it continues with its multi-year austerity prescription. And critics say that despite the improvement in overall growth, many people in Britain are failing to see an improvement in their living standards.
“It’s a measure of how poor the economy is faring that this level of growth is being welcomed,” said Frances O’Grady, general secretary of the Trades Union Congress, the umbrella body for the country’s trade unions. “We remain stuck in the slowest recovery for a century.”
The International Monetary Fund has suggested that the government might want to reconsider the pace of its austerity measures to help the economy, whose output was worth 1.4 trillion pounds ($2.1 trillion) in 2012.
If the second quarter trend continues for the year, Britain’s annualized growth rate would be around 2.5 percent, similar to those that have existed in the United States for a while now.
“This is going to plan for the government,” said James Carrick, a UK economist for the financial services company, Legal & General. “We’re getting decent growth despite the austerity programs.”