InvestmentsMay 23 2013

Positive UK growth unchallenged in second estimate

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Second estimates of UK GDP support the original signs that the economy grew more than forecast in the first three months of this year, but the breakdown suggests the trend is unsustainable.

The revision maintained that the UK economy grew 0.3 per cent at the start of this year compared with three months earlier, avoiding a triple-dip recession.

“The bounce back in the first quarter of 2013 is evident,” the Office for National Statistics said in a release accompanying the figures.

The body said that the figure was largely derived from the operating surplus of corporations, which grew by 4.1 per cent in the first quarter, following a 4.3 per cent decline at the end of last year.

But David Tinsley, UK economist at BNP Paribas, said that time would tell whether companies would be able to sell these accumulated stocks and goods as the global economy showed signs of deteriorating in the second half of this year.

“The composition of growth was a bit disappointing. Companies are building up stocks and goods rather than selling,” he said.

“It’s good if companies are being optimistic, but not so good if they can’t find anyone to sell to, as they might have to cut back on production.

“The downside is that the rate of improvement in the global economy is weak, as shown from the overnight China [PMI] data. It could be that companies can’t sell stock in the second quarter and activity falls.”

Elsewhere, expansion across the services sector and a 4 per cent increase in mining were revealed to be positive contributors, while construction and manufacturing activity both fell in the first quarter.