Britain's economy grew at its fastest rate in two years in the second quarter of 2006, driven by buoyant retailing, official data showed yesterday, supporting expectations for a near-term interest rate hike.
The Office for National Statistics said GDP rose by 0.8 per cent in the April-June period, topping analysts' forecasts for 0.7 per cent growth, which was also the rate for the first quarter of the year.
Interest rate futures showed little reaction to the data, as markets have already priced in a strong likelihood the Bank of England will soon raise rates from their current 4.5 per cent. The pound rose to a one-month high against the dollar.
"The big picture is that we have had three successive quarters of above trend growth and now we've seen an acceleration in Q2," said Ross Walker, UK economist at RBS.
"The Monetary Policy Committee pay a lot of attention to the GDP data and at the margin it just nudges us a little bit further toward a rate hike next month."
The ONS said the annual rate of growth picked up to 2.6 per cent, its strongest in one-and-a-half years, from 2.3 per cent in Q1. The quarterly acceleration was driven mainly by the services sector, which grew by 1.0 per cent.
Retailing, which was lifted by the World Cup soccer tournament, made a particularly strong contribution, helping to more than double distribution, hotels and catering output growth in Q2 to 1.2 per cent. Pubs and bars also played a part.
Growth in business services and finance also accelerated to 1.2 per cent in the three months to June from one per cent in Q1.
By contrast, output from the production industries fell by 0.1 per cent over the three month period, having risen by 0.8 per cent in Q1.
That weakness came mainly from electricity, gas and water output, which fell 2.8 per cent in the April-June period - the sharpest quarterly decline in more than a decade.
Milder temperatures reduced the demand for electricity, while a ban on the use of hosepipes to water gardens and heavy rainfall in May reduced demand for water, the ONS said.
Manufacturing output, meanwhile, grew 0.5 per cent in the quarter, only about half the rate of the previous quarter.