European recovery boosted by growth in Britain
Published 24/07/2010 | 05:00
THE British economy grew at the fastest pace in four years in the second quarter and German business confidence surged to a three-year high this month, indicating Europe's recovery may be stronger than forecast.
Britain's gross domestic product rose 1.1pc in the three months through June, almost twice as fast as the gain predicted by economists in a Bloomberg News survey, the Uk's Office for National Statistics said in London yesterday.
In Munich, the closely watched Ifo institute said its business climate index, based on a poll of 7,000 executives, jumped to 106.2 this month, confounding expectations of a decline.
The reports suggest two of Europe's largest economies are being buoyed by slides in the pound and the euro just as factories step up production to meet global demand.
"Europe is coming in relatively strong -- stronger than expected," said Laurent Bilke, an economist at Nomura International. But "it's unlikely we'll sustain this level for long".
The euro rose against the dollar to top $1.29 before easing back to $1.2847, while sterling surged 1pc to $1.5420.
"The latest data are reducing the risk of double-dip recession," European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said. "The first indicators for July, for example, are quite positive."
Gabriel Stein, analyst at Lombard Street Research in London, said: "The German economy is likely to have seen exceptionally strong growth in the second quarter, which probably will continue in the third; but further out, prospects look less stellar.
"Significantly, the Ifo 'current situation' index is higher than the 'expectations' one. This is usually a sign of confidence -- and the economy -- about to turn down."
Rebounds in services, manufacturing and construction ignited the British recovery in the second quarter after the economy grew 0.3pc in the first.
That pick-up may sharpen the divide among policymakers as the Bank of England considers whether the economy faces a greater threat from inflation or needs more stimulus to avert another recession.
"It's a very encouraging sign that the recovery is establishing itself, strengthening and broadening," said Neville Hill, an economist at Credit Suisse Group.
Britain's Office for Budget Responsibility, the state's new fiscal monitor, said last week that the government's spending cuts have increased the chances of the economy plunging back into recession.
Elsewhere in Europe, Italy's Isae Institute reported yesterday that an index of consumer confidence unexpectedly rose to 105.6 from 104.4.
Household spending in France unexpectedly fell 1.3pc in June from the previous month, but business confidence remains high.