Further growth in economy expected

Picture: PA Wire

Picture: PA Wire

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A pick-up in economic growth is expected to be shown when official figures are released this week.

A number of economists expect gross domestic product (GDP) to have grown by 0.7% in the second quarter after falling back to 0.4% in the first quarter - the weakest pace since the end of 2013.

The slowdown recently prompted the independent Office for Budget Responsibility to downgrade its annual growth forecast for the UK from 2.5% to 2.4%, following expansion of 3% in 2014.

Tuesday’s figures from the Office for National Statistics will show whether the economy has bounced back from the poor start to the year.

Investec economist Chris Hare said the dominant services sector - representing three-quarters of output - was likely to do “most of the legwork” with the beleaguered construction and manufacturing industries set to have shrunk.

Growth in domestic demand - with household finances boosted by inflation at zero and accelerating wage growth - should buoy demand for services.

But manufacturing has been under pressure because the strong pound makes exports more expensive for foreign customers.

If the second quarter GDP figures are stronger than expected it could increase speculation about the timing of an interest rate hike being earlier than previously thought.

Recent remarks from Bank of England governor Mark Carney are seen as having brought forward the possibility of an increase in the rate, which has been held at 0.5% for more than six years. Until the comments a hike was not expected until the middle of 2016.

If growth looks significantly stronger than expected it could be seen as translating into greater inflationary pressures further down the track, adding to the likelihood of an increase.

Investec has pencilled in 0.7% growth for the second quarter while Samuel Tombs of Capital Economics forecasts a slightly slower 0.6%.

He said it was “a respectable figure, but certainly not one that is going to rush the MPC [Bank of England Monetary Policy Committee] into raising interest rates”.

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