Business »

UK Economy said to have Expanded 0.6% between June and August: NIESR

H.S. Borji
Share on StockTwits
Published on
UK Economy said to have Expanded 0.6% between June and August: NIESR

The UK economy grew at a steady rate in three months through August, as output continued to moderate after regaining its pre-recession peak in the first half of the year.

UK gross domestic product accelerated 0.6 percent between June and August, following a gain of 0.5 percent in the May to July period, the National Institute of Economic and Social Research reported today.

The NIESR estimate suggests the UK economy accelerated at a pace of 2.9 percent when compared to the same period of last year. With its latest estimate, the NIESR forecasts UK GDP growth at 3 percent in 2014 and 2.3 percent in 2015.

The UK economy grew 0.8 percent in the second quarter, which translated into an annual gain of 3.1 percent, the Office for National Statistics confirmed last month.

The UK economy was buoyed in the first half of the year by a resurgent labour market, which boosted consumer spending and home buying. As a result, the UK reached its pre-recession levels far earlier than previously expected.

On Tuesday the Office for National Statistics said industrial production rose in July at the fastest pace in five months, exceeding forecasts.

Industrial production increased 0.5 percent, which translated into an annual gain of 1.7 percent. On an annual basis, July represented the eleventh consecutive monthly increase.

The manufacturing component of industrial output increased 0.3 percent, as expected. That translated into an annual gain of 2.2 percent, official data showed.

Today’s figures suggested the economy had regained momentum after showing signs of moderation over the summer. Markit Group’s manufacturing index reached a 14 month low in August, suggesting manufacturers are facing headwinds in the third quarter.

Those headwinds likely reflect, at least in part, a volatile Eurozone economy. The 18-nation currency union suffered a major setback in the second quarter, as Germany contracted and Italy slipped back into recession. As a result, Eurozone GDP growth was flat in the April to June period.

The Ukraine crisis will continue to impact the Eurozone, which could have more adverse effects on the UK. At the same time, the growing possibility of an independent Scotland could also weigh on the British economy. A recent YouGov poll showed 51 percent of Scots were in favour of independence.

Scotland’s referendum on independence will take place on September 18.

Uncertainty over Ukraine and Scotland will weigh on the UK economy in the second half of the year, according to CBI. The business group said the UK economy will grow 0.7 percent in the third quarter before slowing to 0.6 percent in the October-December period. That translates into an overall gain of 3 percent in 2014.

By contrast, the International Monetary Fund says the UK economy will grow 3.2 percent in 2014, according to its latest revision.

While UK recovery remains on firm footing, earnings growth remains stubbornly low, reflecting spare capacity in the labour market. As a result, the Bank of England is likely to hold interest rates at a record low of 0.5 percent until next year.

The BOE made no changes to monetary policy at the September meetings, which were held last week.

Share on StockTwits