Growth back to pre-slump peak as firms’ output soars

Official figures were today expected to show that Britain’s economy is growing again at its pre-recession peak despite signs of a slowdown on the 
high street.

CBI chief policy director, Katja Hall
CBI chief policy director, Katja Hall

Analysts expect gross domestic product (GDP) to have grown by between 0.7 per cent and 0.8 per cent in the three months to June, broadly matching the pace of growth achieved in the first quarter. That would push the annual rate of expansion to 3.1 per cent – the strongest reading since the fourth quarter of 
2007, prior to the economic downturn.

The Office for National Statistics (ONS) data, a preliminary estimate based solely on the output side of the economy, comes amid a flurry of generally upbeat surveys.

Yesterday, the CBI said the recovery was showing “little sign of slowing down” as the business organisation’s latest growth indicator showed private-sector output maintaining a healthy pace.

It was published as separate ONS figures revealed that UK retail sales volumes in the second quarter were the strongest in a decade, although the rise in June was subdued, suggesting that shoppers may be tightening their purse strings in the face of rising bills, weak wage growth and the prospect of higher interest rates.

Coalition politicians have been attempting to rebalance Britain’s economy away from its over-reliance on consumer spending. However, efforts to reignite the manufacturing sector have had mixed results.

Katja Hall, deputy director-general of the CBI, said: “The recovery shows little sign of slowing and it’s looking likely that GDP has surpassed its pre-crisis peak. There are signals that the recovery may now be on a more sustainable footing, with growth becoming more broad-based as business investment in particular grows strongly. But there are still long-standing issues around boosting exports, while disappointing productivity could impact wages and household spending.”

Howard Archer, chief UK economist at IHS Global Insight, the forecasting consultancy, said: “It is questionable how strong consumer spending can be on a sustained basis until earnings growth picks up appreciably. The missing link as far as consumers are concerned is decent earnings growth, while there may also be some concern at the increased speculation of an interest rate hike before the end of 2014.”

He forecast second-quarter GDP expansion of 0.8 per cent, quarter-on-quarter, but added that he would not be “unduly surprised” if growth had moderated to 0.7 per cent. Yesterday’s ONS release showed that retail sales volumes rose 1.6 per cent between April and June compared with the previous three months, the strongest calendar quarter since early 2004.

But they nudged up just 0.1 per cent in June from May.