LONDON (MNI) – UK economic output rose at its fastest rate for more
than three years in the second quarter, at nearly twice the pace
economists had been forecasting, figures released by National Statistics
Friday showed.

Gross Domestic Product rose 1.1% on the quarter to stand 1.6%
above levels a year earlier. This was the strongest quarterly rise in
GDP since Q1 2006 and the highest annual growth since Q1 2008.

Analysts had expected to see a 0.6% quarterly increase and a rise
of 1.1% on the year.

The shock figures show the economy performing far better than
economists had forecast and suggest the economic recovery appears to
be far more entrenched than thought.

Some Bank of England officials have aired concerns about the future
strength of the economy, and the BOE looks set to lower its medium term
growth forecasts. These figures, however, are likely to raise
speculation that the BOE may need to raise interest rates sooner than
many expect.

Nevetheless, while Q2 GDP exceeded private sector economists
expectations it was only a shade above the BOE’s implied forecast in its
May Inflation Report, of close to 1.0%, with the central bank largely
anticipating the second quarter rebound.

Growth was led by the service sector where output rose 0.9% on the
quarter and was up 1.7% on the year. Services contributed 0.7 percentage
points to the 1.1% quarterly growth. Within services there was strong
growth in all categories except transport, storage and communication
which saw a 0.7% decline on the quarter.

There was also a sharp increase in construction output which leapt
6.6% on the quarter, the largest quarterly rise since Q2 1963. National
Statistics said this was partly due to base effects as output in Q1 had
been affected by poor weather, but output was still sharply higher than
Q4 2009. Construction contributed 0.4 percentage points to the total
quarterly growth.

Industrial production rose 1% on the quarter to stand 1.5% above
levels in Q2 2009. Manufacturing output was up 1.6% on the quarter, the
highest since Q3 1999 and was up 3.8% on the year.

Agricultural output rose 0.3% in Q2 compared with Q1 and was down
4.7% on the year.

–London newsroom: 44 20 7862 7492; e-mail:drobinson@marketnews.com

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