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ONS will likely confirm UK second quarter growth at 0.8%

H.S. Borji
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The Office for National Statistics on Friday will confirm the UK economy grew 0.8 percent in the second quarter, bringing the economy back to pre-crisis levels, according to forecasts.

The revised estimate of second quarter growth will be released three weeks after the previous estimate, which showed the UK economy maintained its robust growth pace in the three months through June. The 0.8 percent growth rate translated into an annualized gain of 3.1 percent, the ONS said last month.

Second quarter growth was led by faster output in the services sector, which expanded 1 percent over the previous three-month period. Industrial production rose 0.5 percent.

UK gross domestic product has accelerated in each of the last six quarters, finally bringing the economy back to pre-crisis levels.

The UK economy accelerated at a faster pace in the first quarter, building off the momentum it generated in the back-half of 2013. The economy expanded 0.8 percent between January and March, as rising employment boosted consumer demand.

The International Monetary Fund expects the UK economy to grow 3.2 percent in all of 2014. The Bank of England, meanwhile, recently upgraded its growth forecast this year from 3.4 percent to 3.5 percent. The 2015 growth rate was revised from 2.9 percent to 3 percent.

Britain’s rapid recovery has raised expectations the Bank of England would begin tightening monetary policy sooner rather than later. However, weak wage growth is expected to delay the process until the first quarter of 2015.

The BOE slashed its wage forecast in half in its latest quarterly Inflation Report.
That means the central bank expects earnings growth to remain below the inflation rate for an extended period. Average earnings, which weakened further in June, are trending at less than half of the annual inflation rate.

Average earnings excluding bonus increased at an annual rate of 0.6 percent in the second quarter, the ONS revealed on Wednesday. Meanwhile, total earnings including bonuses declined for the first time since 2009, falling at an annual rate of 0.2 percent in the three months through June.

Disappointing earnings growth paints a mixed picture of the UK’s labour market recovery, which has sparked debate about the degree of “slack” remaining in the economy.

UK unemployment fell to a nearly six-year low in the three months through June, with the total number of people unemployed falling to 2.08 million.

Looking more broadly at UK recovery, observers also note a weak export sector and shaky public finances. At the same time, geopolitical concerns inside and outside Europe could weigh on Britain’s robust recovery.

Conflict in Eastern Europe has resulted in a sanctions war between the West and Russia, which could further complicate the economic recovery of the neighbouring Eurozone. Economic growth in the Eurozone was flat in the second quarter, as
Germany slipped into contraction and France stagnated. The fall in German output could force the European Central Bank to introduce more accommodative measures to boost growth and steer the currency region away from deflation.

Unlike the BOE, the ECB is expected to keep interest rates highly accommodative for a prolonged period, as the Eurozone struggles to regain momentum after a year of weak growth.

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