UK economy picks up in second quarter, recovery pace revised higher

[September 30, 2014] By Andy Bruce and William Schomberg

LONDON (Reuters) - Britain's economy grew more quickly than previously thought in the second quarter and its recovery from the financial crisis has been less sluggish than first estimated, according to official figures that use a new way of calculating data.

Britain's gross domestic product (GDP) rose 0.9 percent in the three months from April to June this year, the fastest increase since the third quarter of 2013.

Growth was fueled by the strongest expansion in Britain's vast services industry in almost three years, while levels of business investment also rose strongly, the Office for National Statistics said on Tuesday. However, exports were again weak.

The data showed Britain rebounded from the deep 2008-09 recession earlier than thought, at least in terms of growth.

The economy passed its previous 2008 peak in the third quarter of 2013, nine months earlier than previously thought, and stood 2.7 percent above its pre-crisis size by June.

"Today's significant revisions to the UK's national accounts do not change the fundamental picture that the economy's performance since the recession began in 2008 has been very weak by historical and international standards," consultancy Capital Economics' economist, Samuel Tombs, said. He said the data was unlikely to change the debate within the Bank of England about when to start raising interest rates.

The 0.9 percent growth in the second quarter growth was a slight increase from an earlier reading of 0.8 percent, which economists had expected would be left unchanged.

The figures also showed the economy grew 0.7 percent in the first three months of the year, down slightly from 0.8 percent previously reported. On an annual basis, the economy was 3.2 percent bigger than the second quarter of 2013.

The new measures of growth follow European Union-wide changes to national accounts designed to better measure the size and scope of its economies, including -- for the first time -- treating research and development spending as a contributor to growth and estimates of illicit or black economy activity.

The ONS released current account data, which showed that Britain's deficit with the rest of the world widened to 23.1 billion pounds from 20.5 billion in first three months of 2014.

That was equivalent to 5.2 percent of GDP, up from 4.7 percent in the first quarter.

Economists had expected the current account gap to narrow to 17 billion pounds. Much of the deterioration was due to lower income from foreign investments held by British companies.

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Tuesday's figures were welcomed by Conservative Party finance minister George Osborne, who said they were further evidence that his economic plan is working. The economy is the major policy area in the run up to May's general election.

The opposition Labour party says most Brions are not feeling the benefit of the recovery, with wage growth still very weak.

The Bank of England forecasts that Britain's economy will grow by 3.5 percent this year, which would be its best rate of growth in about a decade.

BoE policymakers are keen to see the recovery broaden from consumption and into investment which would sustain the upturn.

Business investment rose 11.0 percent on the year during the second quarter, and 3.3 percent from April to June alone.

Recent business surveys suggest the momentum behind Britain's swift economic recovery will carry through to the final months of this year. A separate survey published on Tuesday showed British consumer morale remained close to a recent nine-year high despite falling a touch in September.

And a measure of house prices showed growth in property prices fell back this month, easing some concerns about a housing market boom.

The new methods of calculating GDP have also led to revisions of British government debt measures.
 

The ONS revised Britain's budget deficit excluding banks for the 2013/14 fiscal year to 5.7 percent of GDP, compared with 7.2 in the previous year. The earlier measure had shown a 6.5 percent deficit for 2013/14.

(Editing by Louise Ireland)

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