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UK economy grows for fifth straight quarter

UK: Productivity still 'very low'

Britain's economy expanded for the fifth quarter in a row in the first three months of the year -- although the growth rate came in slightly below expectations.

The preliminary data, released by the Office of National Statistics (ONS) Tuesday, showed that first-quarter gross domestic product (GDP) came in at 0.8 percent on the quarter. Economists had expected growth of 0.9 percent.

The figure, however, marks a slight uptick from the 0.7 percent growth clocked up in the last quarter of 2013. And GDP was 3.1 percent higher when compared to the first quarter of 2013 - the fastest rise since the end of 2007.

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But the U.K. economy still remains below its peak at the start of the financial crisis. The ONS said that first-quarter GDP was estimated to be 0.6 percent below its peak in the first three months of 2008.

Sector breakdown

The ONS said that, for the quarter, output had increased in three of the four main sections of the economy - although it slid 0.7 percent in agriculture. By contrast, output grew by 0.9 percent in the services sector, 0.8 percent in production and 0.3 percent in construction.

The agriculture sector was likely hit hard by heavy flooding across swathes of Britain in February, which some analysts feared would have a significant impact on GDP.

The City of London
Dan Kitwood | Getty Images

However, Howard Archer, chief U.K. economist at IHS Global Insight, said the weather did not have a significant overall negative impact.

"There was concern that February's flooding and very wet weather could have had some dampening impact on economic growth in the first quarter, but there is little evidence of this apart from a hit to construction output during the month," Archer said in a note.

"For example, retail sales were robust in February, which diluted concern that people were deterred from shopping. In addition, industrial production was buoyant in February, while survey evidence pointed to still healthy services activity."

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Political relief?

U.K. Prime Minister, David Cameron, responded to the GDP data on Twitter, and insisted the figures proved the government's economic plan was on track.

Cameron and his Treasury chief, George Osborne, are likely to welcome the figures, which although slightly below expectations, still indicate an acceleration in growth.

Only one year ago, the government was being singled out by the International Monetary Fund (IMF) for criticism. The organization predicted then that the U.K. economy would grow by only 0.7 percent in 2013; it actually clocked up full-year growth of 1.9 percent.

Rate hike in focus

As the U.K.'s economic recovery becomes more established, attention is likely to shift to the Bank of England (BoE) - and when Governor Mark Carney is likely to raise interest rates.

The BoE has kept the main rate of interest at a record low of 0.5 percent since March 2009, in an effort to spur on the economy. But as growth picks up, Carney could come under pressure to raise rates sooner rather than later.

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"Ongoing robust growth of 0.8 percent quarter-on-quarter in the first quarter will likely increase expectations that the Bank of England could start to inch interest rates up before the end of the year," Archer said, but added that he believed interest rates would not be hiked until the second quarter of 2015.

"The Bank of England wants to give the economy every chance to develop sustainable, balanced growth with business investment seeing extended improvement and exports increasingly kicking in," he said.

In an interview published Tuesday, Carney said that early economic indicators were consistent with a sustainable recovery.

"There is every sign that the recovery is starting to broaden out and I would describe our attitude at the moment as prudently optimistic," he told the Bristol Post newspaper at an event on Monday.

Carney added the BoE was comfortable with interest rates at their current levels, and stressed that any rises would be "gradual and limited."