UPDATE 2-UK growth at 4-yr high, recovery doubts allayed

* Q2 growth driven by services, construction output

* Construction up after weak Q1, biggest rise since 1963

* Strongest services growth in three years

* UK govt confident private sector will drive recovery

(Adds detail, comment)

By Fiona Shaikh and Christina Fincher

LONDON, July 23 (BestGrowthStock) – Britain’s economic recovery
raced ahead from April to June as the biggest jump in
construction in half a century and a surge in services propelled
growth at its fastest pace in four years.

Gross domestic product jumped 1.1 percent in the second
quarter, data from the Office for National Statistics showed.
That was almost twice the rate analysts expected and nearly four
times the pace of growth in the first quarter.

Friday’s figures suggested Britain’s recovery was on a
firmer footing than many feared, easing concerns that deep
public spending cuts could drive the economy back into
recession, though some said growth may lose momentum in the
third quarter.

The pound jumped more than half a cent against the dollar
and interest rate futures plunged as investors questioned how
long the Bank of England would keep interest rates at their
record low, particularly with inflation so far above target.

BoE policymakers discussed injecting more stimulus into the
economy this month for the first time since February, reflecting
concerns over headwinds from the euro zone debt crisis, bank
lending constraints and fiscal tightening. [ID:nLDE66K0R8]

But concern about price pressures has led Monetary Policy
Committee member Andrew Sentance to vote for a quarter-point
rise in rates for the last two months, and analysts said
Friday’s data may persuade others on the MPC to join him.

“The strong growth registered in Q2 suggests that further
policy loosening may be unnecessary, and may help to swing the
debate in favour of those arguing that the economy is
sufficiently robust to withstand some modest policy tightening,”
said Simon Hayes, economist at Barclays Capital.


Graphic showing UK quarterly GDP growth:


For BREAKINGVIEWS comment on UK GDP, click [ID:nLDE66M0OO]



Finance minister George Osborne said the figures were
evidence that the private sector would be able to fill the gap
left by public spending cutbacks.

“Today’s figures show the private sector contributing all
but 0.1 percent of the growth in the second quarter, and put
beyond doubt that it was right to begin acting on the deficit
now,” he said.

But analysts cautioned that growth could lose momentum in
the second half of this year.

Separate figures on Friday showed banks were still not
lending freely, suggesting households and businesses may find it
hard to make up for the expected drop in government spending.

Even with the second quarter bounce, Britain has recouped
around only a quarter of the output lost during the deepest
recession since World War Two, which wiped 22 billion pounds off
the economy.

“My hunch is that Q3 is certainly not going to be as good as
this,” said Amit Kara, economist at UBS, who said the
government’s forecast for 1.3 percent growth this year still
looked optimistic. “This is about as good as it gets.”

A breakdown of the figures showed the services sector
enjoyed its fastest growth in three years, expanding by 0.9
percent on the quarter — three times as fast as in Q1 and
contributing 0.7 percentage points to growth.

Manufacturing grew 1.6 percent, its biggest rise in more
than 10 years.

Construction leapt 6.6 percent on the quarter — its fastest
rate since 1963, rebounding after weather-related weakness at
the start of the year.

However, analysts urged caution in interpreting the figures,
which were based for the first time based on a new monthly

“There was a surprising pick up in new work in the private
sector — we would question how plausible this is,” said Hetal
Mehta, senior economic advisor to the Ernst & Young ITEM Club.

(Additional reporting by Matt Falloon and David Milliken;
Editing by Patrick Graham and Hugh Lawson)

UPDATE 2-UK growth at 4-yr high, recovery doubts allayed