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UK Economy Said to Have Expanded 0.9% between March and May: NIESR

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UK Economy Said to Have Expanded 0.9% between March and May: NIESR

The UK economy expanded at a steady rate in the three months through May, as the domestic-led recovery continues to offer support for a material shift in monetary policy.

The UK economy accelerated 0.9 percent between March and May, the National Institute of Economic and Social Research reported today. That follows a gain of 1.1 percent in the three months through April that was the fastest since June 2010.

The current estimate suggests the UK economy has effectively surpassed its pre-recession peak and is around 0.2 percent above where it was at the beginning of 2008.

Excluding Italy, Britain is the last of the Group of Seven nation to regain its pre-recession level.

Last month the NIESR raised its annual outlook on the UK economy, projecting growth at 2.9 percent per annum as opposed to 2.5 percent. The NIESR forecasts GDP growth at 2.4 percent in 2015.

The Bank of England forecasts GDP growth at 3.4 percent annually in 2014 and 2.9 percent in 2015.

The UK economy accelerated 0.8 percent in the first quarter, according to official data from the Office for National Statistics. The unemployment rate has fallen to 6.8 percent, a five-year low.

The ONS could show on Wednesday that unemployment fell to 6.7 percent in the three months through April, supporting the view the domestic-led recovery could pave the way for higher interest rates before the end of the year.

Officials at the Bank of England have openly discussed the possibility of a rate-hike occurring sooner than previously expected. Monetary Policy Committee member Martin Weale said last month the central bank could raise interest rates “sooner rather than later.”

The BOE held its overnight rate at 0.5 percent at last week’s meetings, as expected by the consensus.

The BOE is widely expected to become the first major central bank to raise the cost of borrowing. However, UK recovery is still uneven, as international trade continues to disappoint. The current account deficit ran at an average of 4 percent of GDP between 2012-14.

In economic data, British factory output increased steadily in April, the ONS reported today. Industrial production increased 3 percent annually in April versus estimates of 2.8 percent. Manufacturing production increased 4.4 percent, exceeding estimates of 4 percent.

In currency news, the British pound strengthened against the euro, which is succumbing to bearish pressures emanating from the latest European Central Bank policy venture. The EURGBP fell to an intraday low of 0.8064. The pair subsequently consolidated at 0.8084, declining 0.07 percent.

The pound lost ground against the US dollar, which was still supported by nonfarm payrolls and hawkish sentiment from Federal Reserve official James Bullard, who said on Monday the Fed could raise interest rates sooner than expected if recovery continues to gain traction.

The GBPUSD declined 0.28 percent to 1.6756.

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