UK recovery in 2013 better than expected as GDP grows 0.7pc in second quarter
The Office for National Statistics (ONS) confirmed its estimate of 0.7pc growth in the three months to June for the UK economy, upgrading the first quarter from 0.3pc to 0.4pc.
It reiterated that the economy is firing all cylinders, with each of the three key sectors – services, production and construction - expanding.
However, the ONS said growth over the past 12 months was slower than previously thought. GDP has expanded by just 1.3pc in the last year, rather than the 1.5pc previously calculated, due to downgrades in the final two quarters of last year.
For 2012 as a whole, the ONS revised growth down from 0.2pc to just 0.1pc. As a result, the economy remains 3.3pc smaller than before the financial crisis.
Economists remained upbeat about prospects for the rest of 2013, given recent signs that the recovery is gaining momentum, but said the backward-looking data was slightly disappointing.
Business investment fell by £786m in the three months to June to just £28.7bn – its second worst reading since the depths of the recession in September 2009. Investment in machinery and equipment dropped by £1.2bn to £9.8bn. The slump is a concern for the Government, which had originally hoped corporate spending would help drive growth.
However, the Coalition’s efforts to kick-start activity in the housing market appeared to be having some impact. Investment in dwellings, which includes renovations and new build, rose £1.2bn to £13.2bn.
Concerns were also raised about the scale of the current account deficit, which hit £22bn in the first quarter before narrowing to £13bn in the three months to June. The British Chambers of Commerce said it “remains unacceptably large”.
Highlighting the “massive” first quarter current account deficit, Vicky Redwood at Capital Economics said: “The breakdown [of quarterly growth] looks a bit less favourable than before... There are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace.”
Allaying some concerns about a debt-fuelled consumer spending binge, the figures showed that the household savings ratio rebounded from 4.4pc to 5.9pc in the second quarter and that real household disposable income jumped 1.5pc, after a 1.7pc decline in the three months to March.
The ONS said the first quarter savings and income figures had been distorted by delayed salary payments as companies and employers waited for the top rate of income tax to fall from 50p to 45p in April. Household consumption grew for a seventh consecutive quarter, by 0.3pc – slightly less than the ONS’s original 0.4pc estimate.
In total, consumers spent an extra £661m between April and June.
The data also showed that Britain’s manufacturers and contractors are doing better than thought. Factories’ output increased by 0.9pc in the second quarter, higher than the previous 0.7pc estimate and the strongest performance in almost three years.
Construction is now estimated to have grown by 1.9pc during the quarter from a previous 1.4pc estimate, partly as a result of state stimulus schemes to fuel the housing market.
The EEF, the manufacturers’ organisation, said: “These revisions bring better news for manufacturing with stronger growth in the first half of this year and the biggest increase in output in the second quarter for almost three years. With industry surveys also on the up, the prospects for the remainder of this year look better than we’ve seen for a number of years.”