The UK achieved GDP growth of 0.8 per cent in the first quarter of 2014, the Office for National Statistics revealed today, slightly up from the growth of 0.7 per cent seen in the last three months of 2013.
Ons’ preliminary estimate was, however, slightly lower than the consensus forecast of 0.9 per cent and the UK economy remains around 0.6 per cent below its pre-crisis peak.
Economists agree that the provisional estimate confirms the strength of the current recovery, with the annual growth rate of 3.1 per cent the strongest since the beginning of 2008.
Stewart Robertson, senior economist at Aviva Investors, claims it is now “quite plausible” that the UK will be the fastest growing G10 nation in 2014 “as the IMF and OECD have suggested”.
He said: “The economic revival is well-established, although it would now be nice to see greater contributions from investment and exports and a little less from housing and the consumer. That looks possible for the rest of the year, but it is not yet assured.”
Ons data revealed the highest growth was seen in the services sector, which grew by 0.9 per cent, while production output grew by 0.8 per cent and there was a 0.3 per cent growth in construction.
While economists were upbeat about the figures and the picture they pain of the underlying recovery, few expect any acceleration in plans to raise interest rates, with the consensus remaining that the Bank will begin to lift rates from their record low in the first half of 2015.
This is the timeframe that has consistently been suggested by the Bank within its forward guidance, which after changes earlier this year is now focused on a broader range of factors that would point to spare capacity being used in the economy.
Mr Robertson added: “In our view, the recovery will continue during 2014 and 2015 and will eventually require the Bank of England to start raising UK interest rates, although the first increase still looks likely to come sometime in Q1 or Q2 next year.”
Azad Zangana, Schroders’ European economist, agreed, adding the figures confirm the UK is “one of the fastest growing economies in the advanced world”.
He said: “Looking ahead, we expect the economy to maintain a strong pace of growth, driven by loose credit conditions, low interest rates, and easing fiscal austerity. The rebound in the housing market is helping to boost household spending, while companies appear to be gaining in confidence and so are starting to increase levels of investment.
“Taken together with the recent good news in the labour market, we could see the more hawkish members on the Bank of England’s Monetary Policy Committee suddenly find their voices, and begin to talk about raising interest rates.
“We continue to expect no change in interest rates this year, however, if the momentum in activity continues at this pace, there is a big risk the first interest rate rise comes in 2015.”
Jonathan Loynes, chief European economist at Capital Economics, added that it seems “very likely” the pre-crisis peak in GDP peak will be exceeded in the second quarter of this year.
He said: “The combination of falling inflation and rising wage growth should provide more solid foundations for spending in the coming quarters.
“Overall, while there are still some concerns over the sustainability of the recovery, for now at least the figures point to a ‘Goldilocks’ scenario of solid, but not excessive, growth which should allow both inflation and interest rates to remain at low levels for some time yet.”
Scott Corfe, managing economist at the Centre for Economics and Business Research, highlighted that leading indicators continue to suggest the economic recovery has gained “significant momentum” at the start of the year.
He said: “With unemployment falling and earnings growth picking up, there is room for consumer spending to expand without households necessarily becoming more indebted. In addition, a wide range of measures of business confidence stand at high levels and suggest that business investment will grow relatively strongly this year.
“We expect consumer price index inflation to remain below 2 per cent for the remainder of the year and the unemployment rate to fall to 6.5 per cent by Q4 2014.”
