Britain’s recovery gathers pace

Britain’s economy grew by 0.8% in the first quarter of 2014, a slight uptick from the previous three months’ 0.7%, according to a preliminary estimate.

On an annual basis, growth was 3.1% higher than in the January-March period of 2013. That is the fastest year-on-year growth rate in six years, and means we are growing more quickly than any other G7 country.

Britain’s national output is now just 0.6% below its pre-crisis peak, which should be surpassed by July. Industrial production and construction output remain 12% below the peak.

Sterling rose on the news, climbing to its highest level since October 2008 on a trade-weighted basis. It is also at a five-year high against the dollar.

What the commentators said

The 0.8% increase is a tad slower than most analysts expected, but the odds are that it will be revised up, as Citibank’s Michael Saunders pointed out. The first GDP estimate is based on only 40% of the information required to produce the final one.

And for the period between 1999 and 2010, the year-on-year gain has been revised up by an average of 0.5%, “by far the biggest upward revision bias” in the G7.

“Pity it took so long” to get back to peak, said Larry Elliott in The Guardian. The US economy reached this milestone three years ago. Still, at least “all the signs are” that the recent strong growth will continue.

There is expansion across the entire economy – services, manufacturing and construction. Strip out oil and gas output, which has been declining for over a decade, and the economy would already be back to its 2008 level.

The rise in consumer spending, on which the recovery remains “heavily dependent”, should also become more sustainable, said Capital Economics.

It has hitherto been fuelled by households saving less, but now that wages are rising and inflation is falling, real pay is on the rise, which should bolster confidence. Consumer confidence is already at an eight-year high.

Meanwhile, signs of improvement in business investment bode well for a pick-up in productivity. Expect growth of 3% this year and next: we are in a “Goldilocks scenario” of solid, but not excessive growth, which should allow both inflation and interest rates to stay low for some time.