UK economy grows at fastest rate for four years
Updated on 23 July 2010
Britain's growth figures for the last three months take the City by suprise, with the construction and service industries helping the economy expand by another 1.1 per cent.
The rise during the period between April and June was almost double that expected by economists and the highest since the first quarter of 2006. The last time it was bettered was in 1999.
The construction industry - which had been frozen to a near standstill during the snowbound first three months of the year - bounced back with a 6.6 per cent increase in activity, the biggest quarterly rise it has enjoyed since 1963.
But the figures - from the Office for National Statistics - also show that the services sector - which now accounts for three-quarters of the UK economy - had its best quarter in more than three years, growing by 0.9 per cent. Within that, business and finance was the best performer, posting a 1.3 per cent increase
The production sector - which includes manufacturing - grew by one per cent, and hotels and restaurants saw a 0.7 per cent rise in activity. Only transport and communications registered a fall - by 0.7 per cent - due to the impact on air travel of the Icelandic volcano's ash cloud.
Bob the Builder has fixed it, but with a note of caution
An incredible, unexpected economic surprise. And for once, a positive one, as GDP growth in the second quarter obliterates all expectations, writes Economics Editor Faisal Islam.
Bob the Builder has fixed it. In fact he and his chums in the construction industry appear to have fixed the entire economy.
The biggest quarterly surge in construction activity since 1963 added a whopping 0.4 percentage points to the overall second quarter GDP figure.
Firstly, a note of caution. Many in the construction industry would raise their eyebrows at any assessment suggesting some sort of boom. I only note that the construction figures in this GDP data have been based on an entirely new survey.
Secondly, a number like this clearly strengthens the hand of rate hawks such as Andrew Sentance who is already voting for rises in the Bank of England base rate. With inflation stubbornly above target, and a quarterly growth rate that has only been exceeded three times in the entire period of the Bank's independence to set interest rates, I expect more individual votes to raise rates in the coming months.
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The quarterly increase pushed the annual growth figure to 1.6 per cent - the best since before the recession struck at the beginning of 2008 and bolstered confidence in the recovery.
But this could be as good as it gets. While there will now be calls for the Bank of England to respond by increasing interest rates from their record low of 0.5 per cent when its Monetary Policy Committee meets next month, the brakes have already been applied to the economy by the government's announcement of massive cuts in public spending.
Former Labour chancellor Alistair Darling, said that today's figures showed the previous government's policies were right.
"You can see the success of maintaining support for important sectors like construction," he said. "And this is the final nail in the coffin of the Coalition's argument that things are worse than they believed before the election."
But the chancellor, George Osborne, said the figures showed that he was right to begin cutting immediately.
"Today's figures show the private sector contributing all but 0.1 per cent of the growth in the second quarter, and put beyond doubt that it was right to begin acting on the deficit now," he said.
"While I am cautiously optimistic about the path for the economy, the job is not yet done. The priority now is to implement the Budget policies which support rebalancing and help ensure the sustained growth that the Office for Budget Responsibility forecast this year and next."
Jonathan Loynes - the chief European economist at Capital Economics - said that recent business surveys had suggested a weakening in activity, while the squeeze on public spending would also depress growth in the second half of the year.
