UK Economy Bounces Back On Track

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Written By Mohsen Salami

All systems are go for the British economy as the latest government figures showed GDP expanded 0.7% in the last quarter.

That’s bang on economic forecasts and shows an improvement over disappointing growth in the previous two quarters.

The improvement is as a result of a better performance in services and growing industrial output.

The latest figures come on the back of a 0.4% expansion in the first quarter and growth of 0.8% in the last three months of 2014, according to the Office of National Statistics.

“We saw growth slow down at the start of the year, but now the figures have bounced back to those typical of the past two years,” said ONS chief economist Joe Grice.

Back to 2008 levels

“However, we can see that growth is not consistent across the whole economy and some sectors are doing better than others. Services are the main driver but mining and quarrying also posted the best figures for the sector since 1989.

“Other key sectors have not done so well. Construction was flat and manufacturing dropped slightly.”

Services, much of which is provided by the City, accounted for around 75% of economic output and grew by 0.7%.

Turning on the taps for more oil and gas from the North Sea saw industrial output climb by 1%, while construction did not move and manufacturing nudged down 0.3%.

Grice also explained that the figures showed GDP per head in the UK was now roughly aligned with the numbers immediately before the crash in 2008.

In real terms, GDP has regained 5.2% of around 6% lost when the financial crisis hit.

Interest rate riddle

Interest rates have not risen for most of that time – the official rate has stayed pegged at a record low of 0.5% for around nine years.

However, the Bank of England governor Mark Carney has heavily hinted rates will start to ratchet up slowly soon – but has not defined ‘soon’. This has left speculation about whether the markets will see a rate rise this side or the other side of the New Year.

Carney has explained that interest rates will have to rise to stimulate economic growth. He expects them to gently float up to around 2.5% over three years or so. He also expects inflation to rise to around 2% at the same time.

In recent speeches Carney has indicated the interest rate decision will come later this year when more statistical evidence about the state of the economy is available.