Britain’s Q2 economy grows at fastest pace in 9 years

Britain’s Q2 economy grows at fastest pace in 9 years

London: Britain’s economy grew at its fastest pace for nine years in the second quarter as construction soared, official data showed on Friday, but it still faces a rocky road due to big spending cuts and tax hikes.

“GDP increased by 1.2% in the second quarter of 2010, revised up from 1.1%," the Office for National Statistics (ONS) said in a statement. That was the fastest pace since the first quarter of 2001.

Analysts had expected no revision to the initial gross domestic product (GDP) estimate of 1.1% published last month, according to a poll conducted by Dow Jones Newswires.

“Overall, on the face of it, the UK economy’s performance in (the second quarter) was robust and notably outstripped the euro zone as a whole and the United States," said Charles Davis, economist at the Centre for Economics and Business Research.

“Looking into 2011, notable headwinds lie ahead as VAT (sales tax) rises and public spending cuts start to bite and concerns remain over the state of key export markets."

From January, VAT levied on the sale of goods and services rises to 20% from 17.5%, fuelling fears that British inflation will spike.

Later Friday, all eyes will be on US data that is expected to show a sharp downward revision to second quarter economic growth in the world’s biggest economy.

Analysts have forecast second quarter GDP of only 1.4% compared with an initial estimate of 2.4%.

Ahead of the US data, the ONS revised up British construction sector output to 8.5% -- the highest rate of growth for 28 years. The statistics office had originally put the second quarter gain at 6.6%.

The Treasury welcomed the overall GDP data but was cautious regarding the outlook given massive cuts in government spending which are expected to dampen the economy.

“While the government is cautiously optimistic about the path for the economy, the job is not yet done," a Treasury spokesman said.

Britain exited a record recession in the fourth quarter of 2009, a few months before a general election saw a Conservative-Liberal Democrat coalition defeat the ruling Labour party.

The new government has moved swiftly to cut billions of pounds from public spending as it seeks to slash a huge pubic deficit.

“While the second estimate of UK GDP ... confirms that the economy expanded at a pretty robust pace in the second quarter, the figures cast doubt on the sustainability of the recovery," said Capital Economics analyst Samuel Tombs.

“Quarterly GDP growth was nudged up ... largely as a result of faster growth in the construction sector than originally assumed. However, the expenditure breakdown of GDP shows that the recovery is built on very fragile foundations.

“Household and government spending did both post solid rises of 0.7% and 0.3% quarter-on-quarter respectively, but both sectors are very unlikely to maintain such growth rates as the fiscal squeeze kicks in over the coming quarters," Tombs added.

The ONS also said that the economy grew 1.7% in the April-June period compared with the second quarter in 2009. This was revised higher from an initial estimate of 1.6%.