The slowdown recently prompted the independent Office for Budget Responsibility to downgrade its annual growth forecast for the UK from 2.5% to 2.4%, following expansion of 3% in 2014. “Robust GDP growth will intensify hawkish calls on the Bank of England to normalise monetary policy sooner rather than later, and consumers should now be braced for a steady stream of rate rises, starting in early 2016”.
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Both Redwood and Zangana say that this is unlikely to happen this year, with Redwood claiming that there may be “more spare capacity in the economy than the Bank of England thinks” while Zangana says that inflation remains “too low” for a hike.
It’s official: UK GDP grew 0.7 per cent during the second quarter, meaning the UK has now had 10 consecutive quarters of growth.
That compared with growth of 0.4% in the first quarter of the year.
‘Planning and preparation for rising interest rates will mean that anyone who sees their mortgage repayments climb can help offset the cost through the money they saved over these coming months.’. “What’s more, this revival should help to keep inflation subdued”, said Samuel Tombs, analyst at Capital Economics. The “mining and quarrying” component of the industrial output data, which includes oil and gas extraction, increased by 7.8% in the quarter, the biggest rise since 1989. Manufacturing output and public services are much more sluggish, with output growing by just 0.5% or so over the past year. Chris Hare, economist at Investec, expects that to be reflected in the latest GDP figures with manufacturing and the construction sector shrinking in the second quarter.
Construction was flat in the period, the ONS said, recovering from a slight fall the previous quarter. Last month there was a surprise drop in retail sales, despite falling prices, and the latest unemployment figures showed the jobless rate rising for the first time in two years. He said: ‘The point at which interest rates may begin to rise is moving closer.’. “In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year”.
But demand from the euro zone has remained weak, weighing on manufacturers.
George Osborne, the chancellor, said the figures showed that the British economy is “motoring ahead”.
Simon Wells, chief UK economist at HSBC, said: “Underlying growth appears to have slowed and it is also increasingly reliant on the service sector alone”.
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TUC general secretary Frances O’Grady said: “The Government’s economic plan is not delivering what was promised”.
