Business

UK economic growth picks up to 0.7% in second quarter

North Sea oil rig Image copyright PA
Image caption The ONS said tax changes announced in March had helped to boost oil production

UK economic growth accelerated in the second quarter of the year, helped by a big jump in oil and gas production, official figures have shown.

The UK's economy grew by an estimated 0.7% in the April to June period, the Office for National Statistics (ONS) said.

That compared with growth of 0.4% in the first quarter of the year.

Output in the economy during the second quarter was 2.6% higher than the same period a year earlier, the ONS said.

"After a slowdown in the first quarter of 2015, overall GDP growth has returned to that typical of the previous two years," said ONS chief economist Joe Grice.

He added, however, that Tuesday's economic growth figure showed GDP per capita - economic growth as shared out among each member of the population - was back to "broadly level with its pre-economic downturn peak in 2008".

The economy has now seen 10 quarters of sustained economic growth.

Oil and gas surge

The ONS said manufacturing output experienced its first fall in two years with output dropping 0.3% in the quarter.

However, a surge in North Sea oil and gas production lifted overall industrial output by 1% - the biggest increase since late 2010.

Image copyright PA
Image caption UK manufacturing output suffered its first quarterly dip in two years

The "mining and quarrying" component of the industrial output figures, which includes oil and gas extraction, rose by 7.8% in the quarter, the biggest increase since 1989.

The ONS said the increase, which came despite falling oil prices, was driven by tax cuts in March designed to support the sector.

Construction was flat in the period, the ONS said, recovering from a slight fall the previous quarter.

The UK's dominant services sector recorded growth of 0.7%, following a rise of 0.4% in the previous three months.

Domestic demand is expected to remain strong, as wages rise and with the temporary effects of low inflation boosting consumer spending.

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Media captionChancellor George Osborne: "These figures show Britain is motoring ahead"

The ONS said there were also signs that businesses were finally increasing investment.

The first estimate of GDP is based on about 40% of the economic data used in the final output estimate and is subject to revision. The second estimate is due in about a month's time.

Chancellor George Osborne told the BBC the figures showed that the UK was "motoring ahead".

"Our economy [is] producing as much per person as ever before. But there are clear risks out there in the world economy from the eurozone to what's happening in the world's stock markets, and so its vital that we stay on the road that we've set out on," he added.

But Labour's shadow chancellor, Chris Leslie, told the BBC that Mr Osborne was "being very complacent".

"Our economic growth really should be much stronger than this, especially with some of the mounting instability in the European economies, China, worldwide. We haven't seen the rebalancing of the recovery that we should have seen by now," he said.

Interest rates

The latest growth figures come as analysts are speculating over when the Bank of England will raise interest rates from their historic low of 0.5%.

Earlier this month, Bank of England governor Mark Carney suggested rates could rise "at the turn of this year".

Image copyright PA
Image caption Low inflation is expected to continue to boost consumer spending, economists have said

Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former member of the Bank of England's interest rate-setting Monetary Policy Committee (MPC), pointed out that in five of the past six quarters, the UK economy had grown by 0.7% or more, suggesting the economic recovery was "well-established".

Mr Sentance, who said recently that he would have voted to raise interest rates, were he still a member of the MPC, added that the UK was on course to grow by 2.6% in 2015 .

"Against this background, higher interest rates should be firmly on the MPC agenda in the second half of this year," he said.

Anna Leach, head of economic analysis at the Confederation of British Industry (CBI), forecast that growth would remain "decent" through the rest of the year, helped by lower oil price and inflation, which she said would drive consumer spending and business activity.

But she warned: "Performance is mixed across sectors, with UK manufacturers going through a tough time as the stronger pound hits sales into the eurozone. Meanwhile, the eurozone is still grappling with uncertainty over the Greek bailout."

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