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Services sector helps double UK's growth rate

Thursday, 25 Jul 2013 | 5:04 AM ET
UK GDP: is this as good as it gets?
Samuel Tomb, U.K. economist at Capital Economics, reacts to the U.K.'s quarterly GDP and says the economy will struggle to gain further momentum.

Britain's economy expanded at its fastest pace since early 2011 in the second quarter of 2013, showing growth of 0.6 percent from the first quarter, according to preliminary estimates. The data met analyst expectations.

A strengthening services sector helped to boost the official gross domestic product (GDP) figures, released on Thursday. It follows expansion of 0.3 percent in the first three months of the year.

(Read More: Britain's GDP seen strong—But unsustainable)

All of the economy's major sectors - agriculture, production, construction and services - increased quarter-on-quarter, with services leading the way, contributing 0.48 percentage points to the 0.6 percent GDP rise.

Howard Archer, economist with HIS Global Insight, described the data as "very encouraging."

"While the dominant services sector remains very much key to the economy's performance, it is important that manufacturing and construction grow as well if the recovery is to develop and become broadly based," he said.

"While we suspect that the economy will struggle to sustain the second quarter growth rate, it does appear that it is genuinely moving to a firmer footing and we anticipate that it should be able to achieve steady if unspectacular expansion around 0.4-0.5 percent quarter-on-quarter through the second half of 2013 and then gradually pick up during 2014."

Sterling rose against the dollar ahead of the figures, but fell back when the data met expectations to trade flat. Kathleen Brooks, research director at Forex.com, said said a "strong" GDP report was priced into the pound.

Samuel Tombs, U.K. economist at Capital Economics, told CNBC the figures were in line with consensus but also warned that economic growth at this rate was unsustainable.

"I think the economy is going to struggle to gain much more momentum from here," he said. "I think there's still some fundamental constraints out there. I think household debt levels are too high, I think businesses are still very reluctant to invest and I think banks are reluctant to lend. So I think we're going to see stronger growth from here on in."

(Read More: Don't panic! UK recovery is 'firmly entrenched')

British Chancellor George Osborne welcomed the data, which he said were better than official forecasts.

"Britain is holding its nerve, we are sticking to our plan and the British economy is on the mend - but there is still a long way to go and I know things are still tough for families."

The data follows a string of positive economic surveys which boosted hopes the U.K economy was recovering faster than expected.

Activity in the services sector hit a 27-month high in June, according to purchasing managers' index data (PMI). Britain's construction sector grew for a second month in June, while manufacturing recorded its strongest growth in more than two years in June, according to PMI data.

(Read More: UK recovery hopes buoyed by improved earnings)

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