U.K. Q2 GDP Growth Stable At 0.8%; Returns To Pre-Crisis Level

(RTTNews) - British economic growth remained high as expected in the second quarter as a robust expansion in the dominant service sector, and industry completely offset the slight weakness in the construction sector. With the second quarter expansion, GDP returned to its pre-crisis level.

Gross domestic product grew 0.8 percent sequentially in the second quarter, the same rate as seen in the first three months of the year, preliminary data published by the Office for National Statistics showed Friday. The growth figure matched economists' expectations.

GDP was estimated to be 0.2 percent above the peak in the first quarter of 2008. According to the ONS, the economy shrank by 7.2 percent from the peak to trough in 2009.

In the second quarter, GDP grew 3.1 percent from the same quarter a year ago, which was also in line with forecast.

The production side breakdown of GDP showed that quarter-on-quarter growth in the service sector rose to 1 percent from 0.8 percent in the first quarter. The industrial production growth slowed to 0.4 percent from 0.7 percent. Within in industry, manufacturing output was up 0.2 percent.

On the other hand, construction output fell 0.5 percent, reversing the prior quarter's strong 1.5 percent increase. Likewise, agriculture output dropped 0.2 percent versus the 1 percent rise a quarter ago.

Another report from the ONS showed that services output advanced 3.3 percent year-on-year in May. On a monthly basis, services output climbed 0.3 percent, it said.

Samuel Tombs, a senior UK Economist at Capital Economics said he remains optimistic on the scope for the UK economy to maintain its current growth spurt. The economy is likely to experience another couple of years of robust growth and only gradual rises in interest rates, he said.

The Ernst & Young ITEM Club said early this week the U.K. will post the strongest growth among the G7 nations as investment from firms is set to surprise on the upside. The think tank lifted its 2014 GDP outlook to 3.1 percent from 2.9 percent.

In the World Economic Outlook, released Thursday, the International Monetary Fund upgraded its GDP growth outlook for the U.K. to 3.2 percent from 2.8 percent and the estimate for 2015 to 2.7 percent from 2.5 percent.

Bank of England Governor Mark Carney on Wednesday said the interest rate will have to start rising to maintain price stability as the economy normalizes. Policymakers have no pre-set course and the timing of any increases in interest rates will be determined by the data.

Commenting on the second quarter GDP data, IHS Global Insight's Chief UK Economist Howard Archer said the ongoing robust GDP growth in the second quarter very much keeps open the possibility that the BoE could raise interest rates before the end of 2014, although it remains a very close call and much will clearly depend on how well growth holds up over the coming months and what happens with earnings growth.

James Knightley, an economist a ING Bank NV said the BoE will end up tightening monetary policy sooner rather than later with November being the favored date for the first rate hike.