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NIESR estimate to provide insight on UK GDP

H.S. Borji
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The National Institute of Economic and Social Research will report on UK GDP Friday. The monthly report, which tracks the performance of the UK economy over a three-month period, is expected to show the UK economy remained elevated heading into the second quarter.

The UK economy expanded 0.9 percent between February and April, according to a broad consensus of market analysts anticipating Friday’s release. UK GDP accelerated 0.8 percent in the first quarter, the Office for National Statistics confirmed last week. Year-on-year, GDP expanded 3.1 percent in Q1.

The pace of recovery suggests the UK economy is set to regain its pre-recession peak over the short-term.

PMI data courtesy of Markit Group showed April was a strong month for the UK economy, as both manufacturing and services advanced at a faster rate. Manufacturers posted the fastest rate of expansion in eight months, as a rise in new orders kept factories busy and hiring elevated.

On the services front, rising new business kept the pace of hiring elevated in April. Business sentiment was also higher, with more than one-half of service providers anticipating growth in business activity over the next 12 months.

Markit chief economist Chris Williamson had the following to say about the UK economy in April:

“The UK economic recovery shows no signs of running out of steam, and growth could even accelerate further in the second quarter. The upturn in service sector growth matches a similar acceleration to a near-record high for manufacturing output, while construction activity also continues to surge higher.”

Williamson also added:

“The April numbers point to the economy growing by at least 0.8 [percent] in the second quarter and, with confidence about the future rising again in April, there’s no end in sight for the current super-strong growth spell.”

Britain’s recovery, which gained traction in early 2013, has been described by many as uneven, given its reliance on consumer spending and housing activity. However, first quarter growth was relatively broad-based by Britain’s standards, the NIESR reported last month. The NIESR also cautioned recovery is still in its infancy, which means a sizeable negative output gap remains in the economy.

This output gap suggests the Bank of England is likely to keep monetary policy highly accommodative for some time as the economy continues to accelerate. However, a recent string of upbeat UK data has raised speculation the BOE could raise the interest rate as early as next year. This has in turn fueled the British pound, which soared to a fresh five-year high against the US dollar earlier this week.

The European Commission now expects the UK economy to accelerate 2.7 percent this year, up from the previous estimate of 2.5 percent. The International Monetary Fund expects the UK economy to expand 2.9 percent this year and 2.5 percent in 2015. British GDP expanded 1.8 percent in all of 2013, according to revised estimates from the ONS.

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