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UK Economy Said to Have Expanded 0.6% between May and July: NIESR

H.S. Borji
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The UK economy grew at a slower rate in three months through July, a sign growth was beginning to moderate in the third quarter after rising sharply in the first half of the year.

UK gross domestic product accelerated 0.6 percent between May and July, the National Institute of Economic and Social Research reported today. That follows a gain of 0.9 percent in the second quarter.

The Office for National Statistics confirmed last week the UK economy expanded 0.8 percent in the second quarter, following a similar gain in the first three months of the year. Year-on-year, this amounted to a growth rate of 3.1 percent.

The UK economy last quarter regained its pre-recession peak, making it the last Group of Seven nation aside from Italy to do so.

The International Monetary Fund has upped its forecast for UK growth twice this year. The IMF said in its latest estimate it expects UK GDP to accelerate 3.2 percent by the end of the year. This represents an upgrade of 0.4 percentage points this year.

The body also upped its 2015 GDP forecast 0.2 percentage points to 2.7 percent.

The UK has seen employment grow more rapidly this year, which has boosted household consumption and home sales. The number of people out of work declined 121,000 to 2.12 million in the three months through May, bringing the unemployment down to 6.5 percent.

The number of people filing for unemployment benefits in June tumbled 36,300 to 1.04 million, official data showed last month.

The jobs recovery is expected to deepen the rest of the year as the rest of the economy, especially the services sector, continues to recover.

The services sector, which accounts for more than three quarters of the UK economy, expanded at a sharper pace last month, according to Markit Group.

The research firm’s gauge of UK service activity increased from 57.7 to 59.1 in July, far exceeding estimates.

The latest expansion in services output suggests the economy is on pace to expand 0.8 percent in the third quarter.

“The sustained strength of growth will add to calls for interest rates to start rising later this year,” said Markit chief economist Chris Williamson in a press release. “However, with prices charged for services rising only very modestly again in July, an absence of inflationary pressures means there is still a strong case for any tightening of policy to be delayed until 2015.”

The Bank of England, scheduled to meet Thursday to set monetary policy, is expected to keep interest rates at record lows for the time being. The BOE is widely expected to become the first major central bank to lift interest rates, but weak wage growth will probably delay the process into next year.

The labour market recovery has thus far not translated into meaningful wage growth. Average earnings increased 0.7 percent in the three months through May, less than half the rate of inflation.

The BOE on Thursday is expected to keep interest rates on hold at 0.5 percent and the size of its asset purchase facility at £375 billion.

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