Business World

Monday 22 September 2014

Robust UK growth supported by boom in business investment

Published 27/06/2014 | 10:55

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The bridge connecting the Westfield Stratford City shopping mall and Stratford mainline railway station in London.
The bridge connecting the Westfield Stratford City shopping mall and Stratford mainline railway station in London.

Britain's robust first quarter economic growth was supported by the fastest expansion in business investment in two years, offering a sign that the recovery is becoming more sustainable.

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Britain's headline economic growth rate of 0.8 percent in the first quarter was not changed in revised official figures published on Friday, but the numbers did show a faster growth in business investment than previously thought.

Business investment rose by 5.0 percent on the quarter, up from a previous estimate of 2.7 percent and its fastest rate of growth since the first quarter of 2012.

It contributed 0.4 percentage points of the 0.8 percentage points of growth in the economy in the first three months of 2014. Household spending remained the largest contributor, adding 0.5 percentage points, while some other sectors such as non-profits acted as a drag.

Annual GDP growth was slightly revised down to 3.0 percent from 3.1 percent, but was nonetheless the strongest since 2007.

Most economists had expected both rates to remain unrevised to show a 0.8 percent rise on the quarter and 3.1 percent growth on the year, though some had expected a big upward revision to first-quarter construction data to nudge up the overall growth rate. However, a downward revision to first-quarter services output cancelled out the effect of faster construction growth.

Britain's economy was still 0.6 percent smaller than before the start of the financial crisis in the first quarter of 2014, but looks set to surpass its pre-crisis peak in the current quarter - albeit years later than the United States and Germany.

Despite weak growth in incomes, households' mood is upbeat, with the long-running GfK NOP consumer sentiment index showing the most buoyant morale in more than nine years.

Recent data and surveys point to a further strengthening of growth in the second quarter, with the Bank of England forecasting a 3.4 percent expansion this year.

However Governor Mark Carney has said the economy is showing more momentum than the central bank had expected, and raised the possibility of an interest rate later this year if wage growth picks up and growth does not slow down.

ONS figures for the services sector in April, also released on Friday, showed it expanded 0.3 percent on the month after a 0.5 percent rise in March.

The ONS also released first-quarter current account data, which showed that Britain's deficit with the rest of the world narrowed, although less than expected, and remains equivalent to 4.4 percent of GDP.

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