UK economic growth fastest in four years

(News Today) - Britain's economy surged in the second quarter of 2010, with gross domestic product expanding by 1.1 per cent, its fastest pace of growth in four years, according to official statistics released on Friday.

The figures from the Office for National Statistics were far stronger than the consensus 0.6 per cent expansion forecast by a Thomson Reuters poll of economists. The economy expanded by 0.3 per cent in the first three months of this year.

"This is an absolutely incredible growth number -- way above all expectations and the best performance since the first quarter of 2006," said Howard Archer, economist at IHS Global Insight. "Furthermore, the pick-up was widespread across all sectors with service sector activity picking up sharply, manufacturing output humming and the construction sector returning to growth with a vengeance."

The pound immediately jumped on the news, rising 0.8 per cent to $1.5372. Gilt yields, which move in the opposite direction to prices, rose sharply. The yield on the 10-year UK bond jumped 6 basis points to 3.41 per cent. The yield on the two-year note advanced 5bps to 0.82 per cent.

Lending to Britain's private non-financial companies fell £1.1bn in June, compared to an average for the last six months of £1.9bn, writes Norma Cohen.

Lending for mortgages expanded but at a slower pace than seen in June, adding evidence to the view that the bounce seen in house prices in the second half of 2009 is now running out of steam, according to the British Bankers' Association. The unexpected rise in GDP is likely to alter the complexion of the discussions within the Bank of England's Monetary Policy Committee, which only two weeks ago discussed whether more needed to be done to prevent growth from flagging too sharply.

James Knightly, economist at ING, said: "Andrew Sentance will also perhaps feel vindicated in voting for interest rate rises at the last two Bank of England meetings."

However, he noted that many economists were now expecting a slower pace of growth for the rest of 2010. "We still believe that monetary policy tightening is a long way off," he said. " We expect much weaker growth figures in the second half of 2010 and look for inflation to continue to push lower."

Hetal Mehta, senior economic advisor to the Ernst & Young ITEM [Independent Treasury Economic Model] Club, said: "The second quarter is likely to represent the high point of quarterly growth as fiscal tightening and a renewed slowdown in global activity constrains a more robust recovery."

Mr Knightly noted that the growth in the manufacturing sector, at 1.6 per cent, was the fastest for that sector since the third quarter of 1999.

GDP in June stood 1.6 per cent above its level in June 2009.

Business services and finances expanded by 1.3 per cent in the quarter, compared with a rise of 1.0 in the previous quarter.

Construction, one of the hardest-hit sectors of the economy in the recession, expanded by 6.6 per cent, compared with a decline of 1.6 per cent in the first three months of the year.

Separately, the ONS revealed that the index of services had increased 1.0 per cent in May.

Source : CNN

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