Short-lived growth spurt

The Scotsman - - Front Page - Scott reid

The Bri­tish econ­omy grew by 1.2 per cent in the three months till the end of June, the biggest spurt since early 2001, but loom­ing govern­ment cuts mean the re­cov­ery has peaked.

BrI­TaIN’s re­cov­ery is likely to have peaked in the sec­ond quar­ter, with a weak­en­ing global econ­omy and loom­ing govern­ment spend­ing cuts sap­ping growth in the year ahead.

The stark warn­ing fol­lows yes­ter­day’s rev­e­la­tion that growth in the UK econ­omy had hit a nine-year high.

re­leas­ing re­vised GDP data, the Of­fice for Na­tional statis­tics (ONs) said the econ­omy grew by 1.2 per cent in the three months to June, up from a pre­lim­i­nary es­ti­mate of 1.1 per cent.

The ad­vance – the strong­est since the same pace was achieved in the first quar­ter of 2001 – was at­trib­uted to record-break­ing gains in the con­struc­tion sec­tor, which helped lift the coun­try’s in­dus­trial pro­duc­tion.

It means that the Bri­tish econ­omy has now grown for a third straight quar­ter, fol­low­ing the most pro­tracted pe­riod of re­ces­sion since the sec­ond World War.

an­a­lysts expressed doubt that the pace of re­cov­ery could be sus­tained.

an­drew Good­win, se­nior eco­nomic ad­viser to ernst & Young’s Item Club think-tank, said the sec­ond quar­ter was likely to rep­re­sent the “high wa­ter­mark” for growth. “The pub­lic sec­tor will soon be­come a drag on growth as aus­ter­ity mea­sures be­gin to bite, and it would be un­re­al­is­tic to ex­pect the con­sumer sec­tor to con­trib­ute much given the nu­mer­ous head­winds buf­fet­ing house­holds,” he said.

ac­cord­ing to the ONs, out­put in the con­struc­tion in­dus­try grew by 8.5 per cent dur­ing the quar­ter, higher than the 6.6 per cent re­ported in last month’s first es­ti­mate.

Out­put ex­pan­sion from the ser­vices in­dus­tries – ac­count­ing for al­most three-quar­ters of

“The pub­lic sec­tor will soon be­come a drag on growth”

An­drew Good­win

the UK econ­omy – was re­vised down­ward from 0.9 per cent to 0.7 per cent. air trans­port out­put con­tracted 11 per cent.

Busi­ness lead­ers wel­comed the up­ward re­vi­sion to head­line GDP, but high­lighted their con­cern at the ser­vice sec­tor slow­down.

David Kern, chief econ­o­mist at the Bri­tish Cham­bers of Com­merce, said: “The fig­ures do con­tain some wor­ry­ing fea­tures. Growth in ser­vices has been re­vised down and cap­i­tal in­vest- ment fell af­ter record­ing strong growth in the first quar­ter.”

ar­gu­ing that it would be “dan­ger­ous” for the Bank of eng­land to con­sider rais­ing in­ter­est rates any time soon, Kern added: “Busi­nesses are still fac­ing huge pres­sures and in­ter­est rates must stay as low as pos­si­ble for as long as pos­si­ble.”

Graeme Leach, chief econ­o­mist at the In­sti­tute of Di­rec­tors, said: “We don’t ex­pect this level of growth to be sus­tained through the sec­ond half of 2010.

“But whether or not this slide will turn into a quar­terly de­cline or a dou­ble-dip re­ces­sion re­mains highly un­cer­tain.”

The gain in con­struc­tion was the biggest since 1982, but is widely viewed as a one-off af­ter work sched­uled for the first quar­ter was post­poned to the sec­ond af­ter one of the harsh­est win­ters on record.

The ser­vices data was down­wardly re­vised largely as a re­sult of more de­tailed data show­ing the im­pact of april and May’s vol­canic ash cloud.

Charles Davis, man­ag­ing econ­o­mist at CeBr, said: “We ex­pect growth to slow in the sec­ond half of the year as the ef­fects of re-stock­ing wear off and con­sumers re­main un­der pres­sure.”

Ini­tial es­ti­mates of GDP are usu­ally re­vised twice at monthly in­ter­vals.

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