Growth accelerates to 0.7pc in second quarter, suggesting that slowdown at start of the year was just a blip

Britain’s recovery is “motoring ahead”, the Chancellor declared on Tuesday, after official data showed faster growth in the second quarter pushed output per head back to pre-crisis levels.

The pound rose against the dollar and euro after figures showed the UK economy expanded by 0.7pc in the three months to the end of June, following growth of 0.4pc in the first three months of 2015.

Compared with the same quarter in 2014, the economy grew by 2.6pc, according to the Office for National Statistics (ONS).

George Osborne said the figures showed Britain was “motoring ahead”, as the data suggested the recovery in the UK pulled even further ahead of Germany’s in the second quarter.

The Chancellor tweeted: “We must stay on road we’ve set out on.”

Joe Grice, chief economist at the ONS, said Tuesday’s data meant gross domestic product (GDP) per head was now “broadly level with its pre-economic downturn peak” in the first quarter of 2008.

The expansion in the second quarter was driven by Britain’s dominant services sector, which accounts for more than three quarters of UK output. The sector grew by 0.7pc in the second quarter, while industrial production, which drives around 15pc of UK GDP, increased by 1pc.

The ONS said there was evidence that tax cuts in the March Budget helped to push up oil and gas production.

Data showed the “mining and quarrying” component of industrial output, which includes oil and gas extraction, rose by 7.8pc compared with the previous quarter. This represents the biggest increase in more than two decades, with the surge contributing more than 0.1 percentage points to GDP growth.

Mr Grice noted that the overall expansion “differed across the economy”. He said: “Overall growth has been driven by the service sector and the strongest growth in mining and quarrying since 1989. However, manufacturing output has fallen slightly and construction has been flat.”

Tuesday’s figures mean the economy is now 5.2pc larger than its pre-crisis peak.

Jonathan Ashworth, an economist at Morgan Stanley, said the reading supported the view that the weaker growth in the first three months of this year was just a “blip”.

The pound rose by as much as a cent against the euro and dollar on Tuesday, to €1.4140 and $1.5618 respectively. Mr Ashworth said the strong expansion would also bring interest rate rises into focus.

“The Monetary Policy Committee (MPC) appears split between the increasingly more hawkish external members, who want to start hiking soon, and the internal members who want more evidence of higher growth and reflation before voting for lift-off,” he said.

“We expect at least [external member] Martin Weale to vote for a rate hike at the August MPC meeting, with a risk of an additional dissenting vote or votes from other external members. But we expect liftoff only after the external members are joined by bank insiders, which we do not expect until after inflation rises above 1pc, likely in the first quarter of 2016.”

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