UK GDP Growth Revised Up to 1.2%

The UK economy grew slightly faster than initially thought in the second quarter, expanding by 1.2 per cent rather than the 1.1 per cent first estimated.

That is the fastest quarterly growth the UK has seen since 1999, but comes after the economy contracted by more than 6 per cent during the recession.

Growth was driven by a pick-up in household consumption, which made up about half of the expansion in the economy, but also because of a large swing in inventories, as companies restocked their shelves, having depleted them heavily during the downturn. Government spending growth only made up a small part in the overall increase in activity.

Household consumption expenditure rose by 0.7 per cent after falling in seven of the previous eight quarters.

Inventories rose by £1bn, having fallen by £2.1bn in the first quarter. The extent of the rise in inventories is a sign that the fast pace of growth in the quarter will be hard to maintain, as stock-building effects on growth are usually a shortlived part of recoveries, with companies paring back on new orders once their stocks are replenished.

Separate data also showed that business investment fell 1.6 per cent after a sharp rise in the previous quarter. Construction was revised up to see 8.5 per cent growth in the quarter, from a previous estimate of 6.6 per cent.

An improvement in the balance of trade was another part of the pick-up in growth, as exports rose by more than imports. Although trade did not add anything to growth, in the previous quarter a wider deficit had proved a drag on the economy of 0.9 per cent.

Financial Times
8/27/2010 12:08:53 PM