Britain’s gross domestic product (GDP) bounded ahead by 0.3% during July, figures showed today. UK GDP growth was ahead of economists’ expectations of a 0.1% increase.
Taking a “rolling” three month figure, the economy expanded by 0.6% in the three months from May through July, against 0.4% in the three months April to June. This was again higher than economists’ UK GDP forecast of 0.5%.
World Cup boosted retail sales
Service industry growth and increased construction output led the way, with rolling three-monthly rises of 0.6% and 3.3% respectively. The latter’s strong performance was driven by above-average levels of housebuilding.
But manufacturing output fell by 0.2% during July and agricultural production by 0.1%.
He added, “The dominant service sector again led economic growth in the month of July with engineers, accountants and lawyers all enjoying a busy period, backed up by growth in construction, which hit another record high level.”
Strong growth may spur the Bank of England to raise interest rates again, following its hike in August, that took Bank Rate from 0.5% to 0.75%. This was the first “real” rise since July 2007, although a cut to 0.25% in the wake of the UK’s June 2016 vote to leave the European Union was reversed in November last year.
Pound climbs on currency markets
This took Bank Rate back to 0.5%, itself an all-time low level at which it had been set since March 2009.
The prospect of higher interest rates, thus higher returns on sterling-denominated assets, may well have played a key role in sending the pound higher on foreign exchanges. Sterling gained 0.99% against the dollar at $1.3046, 0.45% against the euro at €1.1231 and 1.04% against the Japanese currency at 144.915 yen.
Inflation currently stands at 2.5% in the year to July.
The committee added, “Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.” The next Bank Rate decision, whether to leave it unchanged or raise it, is due this week, on 13 September.
In its July update of the World Economic Outlook, published in April, the International Monetary Fund (IMF) cut its earlier forecast of UK growth this year by 0.2 percentage points to 1.4%. It said this reflected “negative surprises to activity in early 2018”.
The latest figures may cause the IMF to reverse this decision when it will publish the next outlook this autumn.