UK economy growth fastest in nine years

Britain’s economy grew at the fastest pace in nine years in the second quarter of the year, official figures confirmed yesterday.

The Office for National Statistics (ONS) held its estimate for growth of gross domestic product (GDP) between April and June at 1.2 per cent, a pace not seen since 2001.

The advance – originally estimated at an already surprisingly high 1.1 per cent – was upgraded last month following better-than-expected and record-breaking figures in the construction sector.

The upward revision in GDP growth last month was driven by a record-breaking performance in construction sector output, which was revised upwards again yesterday to 9.5 per cent from 8.5 per cent, its strongest rate since the second quarter of 1963.

But economists warned that growth in the second quarter (Q2) represents a peak in the rate of recovery and any further gains in the face of the coalition Government’s deficit-busting spending review next month are unlikely.

Jonathan Loynes, chief European economist at Capital Economics, said: “With income set to come under further pressure over the coming quarters as the fiscal squeeze bites, there are clear doubts over whether households can carry on spending like they did in Q2.

“Overall, there are still very good reasons to be cautious over the sustainability of the economic recovery.”

Today’s figures revealed household disposable income fell by 1.6 per cent in the latest quarter, following a rise of 0.5 per cent in the first ­quarter.

The ONS said an unrevised rise in household spending was offset by a drop in savings. The household savings ratio dropped from 5.5 per cent to 3.2 per cent – its lowest level in six quarters.

Yesterday, Charles Bean, deputy governor at the Bank of England, urged the country to spend more, rather than save.

Howard Archer, chief UK and European economist at IHS Global Insight, said the unrevised GDP growth did not alter the outlook for monetary policy.

The Bank of England is holding interest rates at an all-time low of 0.5 per cent, and has pumped £200 billion into the economy through its quantitative easing programme.

Mr Archer said: “The Bank of England seems highly likely to keep interest rates down at 0.5 per cent for many months to come despite persistent above-target consumer price inflation.”

But looking ahead, Mr Archer said the latest data pointed to a marked slowdown in growth in the third quarter.

He went on: “With recovery likely to remain muted, the Bank of England is seen keeping interest rates down at 0.5 per cent until at least the fourth quarter of 2011.

“Furthermore, the Bank of England could very well revive quantitative easing, particularly if credit conditions remain tight.”

Yesterday’s figures follow a report from the International Monetary Fund (IMF) that concluded the UK economy is on the mend and “recovery is under way”.

The IMF said unemployment in Britain had “stabilised” and financial sector health had improved, and forecast economic growth of two per cent in 2011, although this was lower than its previous estimate of 2.1 per cent.