Growth 'peak' brings warning of slowdown

The stark warning follows yesterday's revelation that growth in the UK economy had hit a nine-year high.

Releasing revised GDP data, the Office for National Statistics (ONS) said the economy grew by 1.2 per cent in the three months to June, up from a preliminary estimate of 1.1 per cent.

The advance - the strongest since the same pace was achieved in the first quarter of 2001 - was attributed to record-breaking gains in the construction sector, which helped lift the country's industrial production.

It means that the British economy has now grown for a third straight quarter, following the most protracted period of recession since the Second World War.

Analysts expressed doubt that the pace of recovery could be sustained.

Andrew Goodwin, senior economic adviser to Ernst & Young's Item Club think-tank, said the second quarter was likely to represent the "high watermark" for growth. "The public sector will soon become a drag on growth as austerity measures begin to bite, and it would be unrealistic to expect the consumer sector to contribute much given the numerous headwinds buffeting households," he said.

According to the ONS, output in the construction industry grew by 8.5 per cent during the quarter, higher than the 6.6 per cent reported in last month's first estimate.

Output expansion from the services industries - accounting for almost three-quarters of the UK economy - was revised downward from 0.9 per cent to 0.7 per cent. Air transport output contracted 11 per cent.

Business leaders welcomed the upward revision to headline GDP, but highlighted their concern at the service sector slowdown.

David Kern, chief economist at the British Chambers of Commerce, said: "The figures do contain some worrying features. Growth in services has been revised down and capital investment fell after recording strong growth in the first quarter."

Arguing that it would be "dangerous" for the Bank of England to consider raising interest rates any time soon, Kern added: "Businesses are still facing huge pressures and interest rates must stay as low as possible for as long as possible."

Graeme Leach, chief economist at the Institute of Directors, said: "We don't expect this level of growth to be sustained through the second half of 2010.

"But whether or not this slide will turn into a quarterly decline or a double-dip recession remains highly uncertain."

The gain in construction was the biggest since 1982, but is widely viewed as a one-off after work scheduled for the first quarter was postponed to the second after one of the harshest winters on record.

The services data was downwardly revised largely as a result of more detailed data showing the impact of April and May's volcanic ash cloud.

Charles Davis, managing economist at CEBR, said: "We expect growth to slow in the second half of the year as the effects of re-stocking wear off and consumers remain under pressure."

Initial estimates of GDP are usually revised twice at monthly intervals.