30th June 2015
The UK economy grew faster than expected in the first three months of the year, official data has revealed.
The economy grew by 0.4% over the quarter, an upward revision on the previous estimate of 0.3%, according to the Office for National Statistics.
It attributed the improvement to a better performance by the construction industry plus a change to the way this sector’s growth is calculated.
Year-on-year the economy grew by 2.9% from the first quarter of 2014, up from a previous estimate of 2.4%.
Economic growth for 2014 was revised up to an eight-year high of 3% from 2.8%.
Household disposable income grew by 4.5% year-on-year, the fastest annual pace since the second quarter of 2001.
Howard Archer, chief UK and European economist at IHS Global Insight, says: “We expect GDP growth to come in at 2.5% in 2015, which assumes that expansion has picked up to 0.7% quarter-on-quarter in the second quarter and then holds up well through the rest of the year.”
He adds: The economic fundaments look broadly positive for the UK, particularly for the consumer, and we believe growth will be largely healthy through the second half of 2015. Consumers’ purchasing power should see marked improvement due to extremely low consumer price inflation (seen averaging just 0.3% over 2015) and strengthening earnings growth, while employment should see decent growth. Furthermore, it currently looks unlikely that interest rates will rise before 2016.
Andy Scott, associate director of foreign exchange advisory services at HiFX, says: “Sterling rose against both the dollar and the euro this morning after figures showed that economic growth was slightly stronger than forecasted in the first quarter of this year, and last year, with the economy expanding at the fastest rate since 2006. Household spending was the biggest driver of growth though there were upward revisions to business investment which is key to a sustainable recovery and continued job creation.
“The initial estimated growth of just 0.3% in the first quarter of the year had raised concerns that the economy was slowing quite sharply from last year’s strong pace of expansion. Today’s figures should alleviate those concerns, though the global economy still looks slightly uncertain with China continuing to cool, emerging economies looking fairly weak and continued turbulence across financial markets due to events in Greece.”
Scott adds: “Sterling rose by around 0.5% against the dollar to 1.5740 and by the same amount against the euro to 1.4100, though this was still down on the seven-year high above 1.43 that the pound reached overnight on Sunday as the market reacted to the Greek referendum announcement. Despite negotiations having ended and Greece set to default on its IMF repayment tonight, the euro has proven pretty resilient thus far.
“Sunday’s referendum outcome could still prove damaging to the euro if they vote ‘no’ as this would surely result in a ‘Grexit’. However in the longer-term, losing their most indebted nation would likely be a positive for the single currency, unless of course, others wanted out too.”