Sterling rallies with growth in British economy

John Cridland hopes the economy will keep motoring. Picture: Contributed

Yesterday’s news that the economy had grown by a solid 3.1 per cent in the past year was greeted with cheer from business leaders, who said the recovery was becoming broad based.

Sterling received a boost, with dealers predicting that the UK currency would continue to outpace the euro, though economists warned of the threat to consumer spending – the bedrock of the recovery – from higher interest rates.

The Office for National Statistics (ONS) data confirmed that gross domestic product (GDP) grew by 0.8 per cent during the second quarter of 2014, putting it 0.2 per cent ahead of its level at the start of 2008.

Britain is now predicted to be the fastest-growing major world economy in 2014. On Thursday, the International Monetary Fund raised its 2014 GDP forecast for the fourth time in a row to 3.2 per cent.

Gary Cooke, senior dealer at foreign exchange specialist Fexco, said the ONS figures were “bang on prediction”.

“The headlines will reassure and rally sterling in equal measure,” he noted. “With Britain’s strong growth leaving most of the eurozone in the dust, sterling will continue to outpace  the euro.”

Chris Towner, a director at foreign currency firm HiFX, cautioned: “The thought going through the market’s mind at the moment is to enjoy sterling’s strength while it lasts as we know that good times do not last forever; just like the weather.”

CBI director-general John Cridland said that with confidence rising and businesses investing, there was a “strong launchpad to propel the economy forward”.

He added: “While there are still risks to growth at home and abroad, we are hopeful the economy will keep motoring along at a steady pace for the rest of this year and next. Now it’s important that we ensure everyone shares the benefits of growth, and this is a priority for business.”