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UK Economy Said to have Expanded 1% between February and April: NIESR

H.S. Borji
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UK Economy Said to have Expanded 1% between February and April: NIESR

UK GDP expanded at a steady rate in the three months through April, offering further sign the economy is progressing toward its pre-recession peak.

The UK economy accelerated 1 percent between February and April, its fastest pace since June 2010, the National Institute of Economic and Social Research reported today.

The NIESR raised its annual outlook on the UK economy from 2.5 percent to 2.9 percent, supporting the view the economy will exceed its pre-recession peak in the next few months. The NIESR said the UK’s economic output was now within 0.17 percent of its pre-recession peak reached in the first quarter of 2008. Per capita GDP is expected to remain below its pre-recession peak until 2017.

The European Commission has benchmarked UK GDP growth at 2.7 percent this year. The International Monetary Fund says the UK economy will expand 2.9 percent in 2014.

The UK economy accelerated 0.8 percent in the first quarter, up from 0.7 percent in the final three months of 2013, according to the Office for National Statistics. Britain’s economy expanded 1.7 percent in all of 2013, the fastest rate since 2010.

The NIESR also said it expects the unemployment rate to average 6.5 percent this year. The unemployment rate, which has fallen steadily since mid-2013, is expected to fall closer to 6 percent next year.

Recently released PMI data courtesy of Markit Group suggests UK job creation is rising at a record pace. According to Markit chief economist Chris Williamson, April PMI data suggest the UK economy is creating 100,000 private sector jobs each month.

On trade, the NIESR gave a much less favourable view.

“The UK’s trade performance remains disappointing, with the current account deficit running at about 4 per cent of GDP, on average, over the period 2012–14, although improving subsequently as the global economy continues to strengthen.”

The NIESR noted few signs of domestic inflationary pressures, concluding that consumer price inflation was likely to stay within range of the 2 percent target. However, the outlook on monetary policy continues to be uncertain. The Bank of England earlier this year was forced to abandon its rate guidance on interest rates after the unemployment rate fell much faster than initially expected. Recent economic data have fueled speculation the BOE may be on course to raise interest rates sooner than expected.

The NIESR says the BOE is on course to raise the interest rate in early 2015.

In economic data, UK industrial production expanded 2.3 percent annually in March versus estimates of 2.4 percent. Manufacturing production expanded 3.3 percent, exceeding estimates of 2.9 percent. The goods trade deficit narrowed from £8.749 billion to £8.478 million, government data showed.

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