Data from the Office for National Statistics has revealed the UK economy expanded by 0.4 per cent in the first quarter of this year, revised up from the previous estimate of 0.3 per cent, however, one economist warns trouble is ahead.
Furthermore economic growth for last year was also revised up to 3 per cent from the previous estimate of 2.8 per cent.
Scott Corfe, associate director at the Centre for Economics and Business Research
Overall, CEBR expects the UK economy to grow by 2.3 per cent in 2015.
While down from 3 per cent last year, this is still a fairly respectable rate of expansion, however growth is expected to slow to 1.7 per cent in 2016 and 1.4 per cent in 2017 as some of the factors supporting the economy at present (such as zero inflation) fade away.
Government spending cuts will also weigh on growth beyond this year, Mr Corfe predicted.
“Growth of less than 2 per cent is much less respectable than 2014 to 2015 rates, and policymakers ought to be doing more to address the UK’s longer term economic performance.
“The chancellor is right to point out that productivity in the private and public sectors needs to improve. But this is only part of the solution to the UK’s problems.”
He added that exports also need to increase, which may prove challenging while the eurozone economy remains “in such a mess”.
“Further, the UK’s addiction to consumer-driven growth means that the benefits of rising exports are often drowned out by imports of goods and services – making it hard for the country to achieve a trade surplus. Exports don’t just need to grow, they need to grow rapidly.”
Mr Corfe also pointed out that the global economy - issues of a Grexit, and ongoing geopolitical crises in Russia, the Middle East and elsewhere - could be significant stumbling blocks.
“The elephant in the room is that policymakers will be unable to do very much in the event of another downturn – interest rates are at the lower bound, further benefits from quantitative easing are questionable and fiscal positions across much of the developed world remain poor.
“Beyond a fairly rosy short term outlook, there’s a real chance of some big problems beyond this year. We’d keep the cheer around the UK economy fairly restrained.”
Samuel Tombs, senior UK economist at Capital Economics
Mr Tombs painted a more positive picture, stating that the accounts shows the economic recovery has “more momentum” than previously thought.
“Granted, certain aspects of the recovery look unsustainable – households’ real incomes grew by just 0.2 per cent in the first quarter, meaning that the 0.9 per cent quarterly rise in real household spending was largely funded by a drop in the saving rate from 5.9 per cent in the fourth quarter to 4.9 per cent in the first quarter, its lowest level since 2008.”
He added that the current account deficit “looks even worse”, after being revised up to 6.4 per cent of GDP.
“But despite these weaknesses, we still think that the UK’s recovery could gain momentum over the coming quarters.
“Indeed, business surveys point on the basis of past form to quarterly GDP growth returning in the second quarter to the 0.7 per cent or so rate seen in 2014. And growth in households’ real incomes should pick up now that real earnings are growing at pre-recession rates.
“Accordingly, we still think that GDP growth this year could be very close to last year’s 3 per cent rate, ensuring that the UK remains the fastest growing G7 economy for another year.”
Andy Scott, associate director of FX advisory services at HiFX
Meanwhile, sterling rose against both the dollar and the euro this morning following the GDP figures.
Mr Scott said: “Sterling rose by around 0.5 per cent against the dollar to 1.5740 and by the same amount against the euro to 1.4100, though this was still down on the seven-year high above 1.43 that the pound reached overnight on Sunday as the market reacted to the Greek referendum announcement.”
donia.o’loughlin@ft.com
