(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
LONDON — Britain's economic recovery accelerated in the second quarter as investment and housebuilding helped to offset the biggest drop in exports in more than two years.
Gross domestic product increased 0.8 percent, matching an initial estimate, the Office for National Statistics said in London Wednesday. Business investment rose 1.4 percent, while exports dropped 2.4 percent, with net trade knocking 0.9 percentage point from GDP.
The Bank of England raised its growth forecasts this month and brought forward the expected timing for unemployment to reach the 7 percent threshold for policy makers to consider raising the key interest rate. Governor Mark Carney Tuesday affirmed officials' guidance that they won't rush to raise rates while there's still slack in the economy.
"The momentum in growth will continue for a while longer but we're less convinced we'll see these rates of growth continue through to next year as much depends on the outlook for business investment," said Philip Shaw, an economist at Investec Securities in London. "The BOE's emphasis for the time being will be that there isn't going to be an interest-rate hike in the near future."
Growth is primarily being driven by domestic factors as the euro area, Britain's biggest trading partner, struggles to recover. The increase in business investment helped to lift gross fixed capital formation by 1.4 percent in the third quarter, and it added 1.1 percentage points to GDP.
Within business investment, the ONS said there were increases in transportation equipment and new buildings including construction of homes.
A revival in property demand, in part fueled by a government program, is helping to boost housing activity. Investment in private-sector dwellings jumped 5.9 percent in three months through September, the most in two years, the ONS said Wednesday.
Consumer spending rose 0.8 percent in the three months through September, an eighth consecutive quarterly increase, while government spending increased 0.5 percent. Imports rose 0.4 percent.
Wednesday's release confirmed a report last month that services, the largest part of the economy, expanded 0.7 percent in the third quarter from the second. Production growth was also unrevised at 0.6 percent, while expansion in construction was revised to 1.7 percent from 2.5 percent.
While Britain's economy is growing, it remains 2.5 percent smaller than before the crisis. The BOE has pledged to support the economy by keeping its key rate at a record-low 0.5 percent at least until unemployment reaches at least 7 percent. The OECD said monetary policy is expected to start to normalize in the last quarter of 2015, according to inflation and unemployment projections.
Speaking to Parliament's Treasury Committee yesterday, Carney raised questions about the reliability of some ONS data, particularly investment, saying he doesn't put "full weight" on the numbers.
"It doesn't entirely feel right that investment, as measured, is falling at a time when we see strengthening investment intentions," he said. He added he "was much more comfortable" with the official data produced in Canada when he was the governor of the central bank there.