Member Article

UK economy shows cross-sector growth

The UK economy grew by 0.6% according to statistics released on Thursday by the Office of National Statistics (ONS).

In the three months up to June, GDP went up by 0.6%, with output growth across all the major sectors, including manufacturing, services, and construction.

ONS figures showed growth was double that in the first quarter of 2013, with manufacturing output up by 0.4%, services up 0.6%, and construction up 0.9%.

Graeme Leach, Chief Economist at the Institute of Directors, commented: “For the first time since the financial crisis the economy looks and feels as if there is a tailwind behind it.

“We are optimistic that the current rate of quarterly growth can be maintained through the second half of 2013 and into 2014.

“Indeed, if one looks to the current broad money supply (the amount of cash and bank deposits) as a leading indicator of economic activity, quarterly growth might actually accelerate slightly over the next 6 months.

“Second quarter GDP growth of 0.6% is in line with trend growth but not above it. Consequently there is little reason to expect an imminent change in monetary policy by the MPC.

“The figures won’t have changed views on the size of the output gap and the amount of spare capacity in the economy. The MPC will also be aware that despite the tailwind to growth from the money supply, significant headwinds remain.

“Key headwinds include the squeeze on household income from inflation running ahead of earnings, bank balance sheet reduction and the ever present threat of a return of the euro crisis.

“Even if a more sustained period of above trend growth was to occur, such a recovery would have within it the seeds of its own destruction. The faster GDP growth becomes the sooner we’ll see a normalisation of interest rate policy.”

Also commenting on ONS’ latest figures, national chairman of the Federation of Small Businesses, John Allan said: “This gathering momentum fits with the results of own recent small business index, which showed firms expected faster export performance in the coming three months and that more businesses were planning to grow in the next 12 months.

“In order for to build on this momentum and for small businesses to meet their aspirations and further strengthen the economic outlook, they need a stable environment.

“The capital spending on projects announced by the Chancellor recently, will have a positive effect on growth in the medium-term and the employment allowance announced at the Budget may help more firms to invest in jobs.

“The Government should now look at increasing competition in banking, enabling a better energy deal and simplifying the complex number of back to work schemes.”

This was posted in Bdaily's Members' News section by Miranda Dobson .