Thursday 29 September 2016

Britain's economic growth accelerates in Q2, helped by trade

Andrew Trotman

Published 28/08/2015 | 13:25

Flemming Ornskov, chief executive officer of Shire, said sales of current products would generate at least €7bn by 2020. Bloomberg
Flemming Ornskov, chief executive officer of Shire, said sales of current products would generate at least €7bn by 2020. Bloomberg

Britain's economy gathered speed in the second three months of 2015, boosted by a jump in exports and business investment in the latest sign that the recovery is broadening out.

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. Official figures on Friday showed gross domestic product rose by 0.7 percent in the second quarter, confirming a preliminary reading, and up from 0.4 percent in the first quarter.

Exports contributed the most to growth in the second quarter. Business investment also helped -- good news for the government, which hopes to broaden a recovery led mainly by services and household spending.

"While the figures point to some rebalancing in the economy towards investment and exports, it is much too early to be satisfied with where we are, particularly on the trade figures," said David Kern, chief economist at the British Chambers of Commerce.

Net trade boosted GDP by 1.0 percentage points on the quarter, the biggest contribution in four years, the Office for National Statistics said.

Exports jumped 3.9 percent on the quarter and 8.1 percent compared with the same quarter last year -- the biggest year-on-year rise since the first quarter of 2011.

But analysts worry that the improvement in trade will be fleeting because of the persistent strength of sterling, which recently reached a 7 1/2-year high on a trade-weighted basis.

Concerns about China's economic health and the global outlook could also weaken demand for imports. The ONS said trade figure was boosted by exports to the United States and China.

In a further sign that the recovery may be broadening out, business investment rose 2.9 percent on the quarter -- the highest quarterly rise in a year -- while household spending growth slowed slightly on the quarter to 0.7 percent.

Still, household consumption contributed 0.4 percentage points to overall growth.

Analysts said the data didn't change the outlook for British interest rates. Economists widely expect the Bank of England to raise rates in the first quarter of next year, but markets have pushed back bets to around the third quarter of 2016, according to Reuters calculations of ICAP data.

Britain's economy grew 3.0 percent in 2014, the biggest expansion since 2006, and the BoE expects it to broadly maintain this momentum this year, forecasting 2.8 percent growth in 2015.

"The BoE will likely welcome the rebound in investment as a signal that businesses feel ongoing confidence about the future and are ready to solve their productivity issues by investing, supporting a better and healthier growth outlook," said Fabrice Montagne, economist at Barclays.

Reuters

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