UK GDP growth for Q3 confirmed at 0.7%

Sunday, 29 September 2013 08:33

The final GDP figures for the second quarter published today by the Office for National Statistics (ONS) show that growth was unchanged 0.7 per cent.

There was also a boost for the economy when the ONS revised up growth figures for the first quarter from 0.3 per cent to 0.4 per cent. 

This means the annual growth rate was 1.5 per cent and confirms the improvements seen in the UK economy in the first half of 2013.

However, the ONS revised down overall growth in 2012 from 0.2 per cent to 0.1 per cent. 

Drilling into the detail of the figures shows that business investment, seen as a key driver for the continued economic recovery, was down by £786 million in the quarter to £28.7 billion, the second worst reading since 2009. 

Investment in machinery and equipment fell from £11 billion in the quarter to just £9.8 billion.

However, the construction and industrial sectors showed their strongest level fo growth for three years.

Looking ahead, economists believe the economy will continue to grow at a slightly faster pace over the rest of the year.

Chris Williamson, Chief Economist at Markit said: "The UK economic recovery gained momentum in the second quarter, and a further acceleration of growth looks likely in the third quarter in what's looking like an increasingly broad-based and sustainable looking upturn."

The ONS found that UK nominal GDP, which includes inflation is rising at 3.5 per cent on an annual basis, the strongest since mid-2011, but still below the pre-crisis average of 5.0 per cent.

Real household disposable incomes were up by 1.5 per cent in the second quarter.

The ONS said that although GDP growth since mid-2011has been "broadly flat", in the first half of 2013 the UK economy has expanded by 1.0 per cent.

Dr Howard Archer, Chief UK & European Economist at IHS Global Insight said that the GDP growth from the expenditure side of the economy was “encouragingly broadly-based.”

He said: "There were no major revisions to the GDP data. Growth was a little better overall than previously reported in the first half of 2013 but this was countered by modest downward revisions to GDP in the second half of 2012." 

Archer said this may mean that the contribution to the 0.4 per cent GDP growth seen in the first quarter may have come from consumers dipping into savings because the household savings ratio dipped from 5.9 per cent to 4.4 per cent in the first quarter. The ONS confirmed that the savings ratio had returned to 5.9 per cent in the second quarter.

Mr Archer believes the “UK economic recovery has moved to is firmer base and that respectable growth can now be sustained despite still significant headwinds.”

This has led IHS Global Insight to raise their predictions for GDP growth for 2013 to 1.5 per cent from 1.3 per cent and for 2014 from 2.0 per cent to 2.4 per cent.

Looking ahead to the third quarter GDP figures, the first estimate of which is published in October, Mr Archer said “it is very possible that GDP growth in the third quarter could reach 1.0% quarter-on-quarter or more,” a quarterly growth level which has not been seen since the third quarter of 2007.

However, Archer thinks that the expected negative contribution from net trade will limit GDP growth in the third quarter to 0.8 or 0.9 per cent.

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