British GDP revision may increase pressure for interest rate rise
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E-mail Xinhua, August 24, 2013
The second release of the second quarter GDP growth for Britain showed a 0.1 percent upward revision to 0.7 percent quarter and quarter, prompting economists on Friday to say it could put pressure on the central bank to raise interest rates earlier than planned.
The upward revision of GDP in the second quarter was yet another positive sign for the British economy. However, modest improvement in economic prospects since the beginning of the year has led economists to continually revise upwards their growth expectations.
Economists' revision was driven by the construction sector and small improvements in other sectors, bringing the year-on-year growth projection to 1.5 percent.
The central bank, the Bank of England (BOE), is predicting 1.1 percent growth this year, revised up in May from 0.9 percent.
James Knightley, senior UK economist with ING, told Xinhua the upward revision was encouraging and the new figures also revealed more data about the recovery which showed it was broadening out.
The data showed household spending rose 0.4 percent quarter-on-quarter, while investment jumped 1.7 percent and exports rose 3.6 percent.
Government spending increased 0.9 percent, backing up data from the public sector finances that the government has not been particularly "successful" in its austerity drive, said Knightley.
"It looks like the recovery is broadening out from something being government-spending led and consumer-spending led and into something really sustainable," he said.
"This could point to an earlier rate hike than the BOE is suggesting, and we believe it will be the early part of 2015 when interest rates rise rather than late 2016 as the BOE currently anticipates," he added.
Simon Wells, economist with HSBC, said the expenditure mix was encouraging with robust growth in household consumption, investment and net trade.
He added, "Today's release continues the strong run of British data and won't help the BOE in its battle to convince financial markets about its forward policy guidance."
David Kern, chief economist at industry body British Chambers of Commerce, said there were still problems facing the economy, which was 3.3 percent below its pre-recession peak.
Kern highlighted low business investment as a weakness, but noted that trade had improved. "Although the rebalancing towards net exports is taking some time, we have seen a significant narrowing of the trade deficit in the first half of this year," he said.
Kern said potential problems lay in the continuing uncertainty of the international situation, particularly in some of the key emerging markets, and the eurozone may still face new problems, despite the fact that the region has returned to growth.
"Measures to support growth are still needed, with particular focus on ensuring that viable firms are able to obtain adequate finance," he added. Endi
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