UK economy surpasses its pre-crisis level

Britain’s economy is finally bigger than it was before the financial crisis struck six years ago, official data showed yesterday.

Gross domestic product expanded by 0.8% in the April-June period, the same strong pace as in the first three months of the year and in line with forecasts in a Reuters poll of economists.

Compared with the second quarter of last year, growth was 3.1%, the fastest pace since the end of 2007, the Office for National Statistics said.

That meant total economic output was 0.2% bigger than in the first quarter of 2008, its previous peak.

Britain’s economy largely flat-lined after a 2008-09 recession. But it sprang back to life last year and is set to be the fastest-growing country in the Group of Seven rich nations this year, according to the International Monetary Fund.

The pace of the recovery has put the Bank of England on alert that it may have to raise interest rates this year although its policymakers expect a slight slowing in the second half of 2014 and are focusing increasingly on low pay growth.

The ONS said yesterday that the country’s dominant services sector again led the way, expanding by 1.0% in the second quarter from the previous three months, the fastest quarterly growth since the third quarter of 2012.

In a reminder of the challenge of getting the economy onto a sustainable footing over the long term, manufacturing edged up just 0.2% between April and June, its weakest growth rate in more than a year.

Construction shrank by 0.5%, the first time the sector has not grown since the start of 2013. Building had a very weak month in May and an ONS official said construction was expected to show growth again in June.

Only the services industry — which accounts for about 80% of Britain’s economy — is now bigger than before the crisis, at nearly 3% above its previous peak. Industrial output and construction are both still more than 10% smaller.

While economists had predicted overall economic growth would come in at 0.8% in the second quarter, some had seen a risk of it being weaker after disappointing industrial output and construction data during the period.

The government, facing national elections in 10 months’ time, is unlikely to draw much attention to the economy getting back to its pre-recession size.

Other countries recovered the output lost to the crisis much earlier than Britain. Germany passed that milestone in 2010 and France and the US followed the next year.

Reuters


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