British economy grows last year at fastest rate since crisis

Britain’s economy grew last year at its fastest rate since the financial crisis, official data showed yesterday, raising questions about how long the Bank of England can keep interest rates at a record low.

Barring construction and oil and gas extraction, all major sectors of Britain’s economy expanded in the final three months of 2013, concluding its best showing since 2007, the Office for National Statistics said.

The economy grew 0.7% quarter-on-quarter from October to December, in line with forecasts for that pace to ease from 0.8% in the third quarter. Growth for the full year rose to 1.9%.

That was a vast improvement over 2012’s 0.3%. It bodes well for the coming 12 months and should improve the government’s standing just over a year before a national election.

The data also led to more speculation about when the Bank of England will raise rates. Such speculation was already being fuelled by a steep drop in unemployment towards the 7% threshold at which the bank has said will consider the future direction for monetary policy.

“We forecast the Bank of England will start hiking in Q2, 2015, given the strong turnaround in the economy and labour market,” said Blerina Uruci, economist at Barclays.

Bank of England Governor Mark Carney has said there is no need for rates to rise any time soon, and the bank itself had forecast fourth-quarter growth at just under 1%. Britain’s total output is still 1.3% below the pre-financial crisis peak — a weaker performance than other large advanced economies. Inflation has fallen to the bank’s 2% target for the first time in four years.

Several economic indicators over the past few months suggested Britain’s economy was recovering faster than either policymakers or independent forecasters had predicted. Data from the Confederation of British Industry yesterday suggest 2013’s strong growth continued into January.

Reuters