UK economy sees fastest growth since 2007, with GDP up 1.9%

Tuesday 28 January 2014 18.36
UK economy grew by 1.9% last year, new ONS figures show
UK economy grew by 1.9% last year, new ONS figures show

Britain's economy in 2013 recorded its fastest annual growth since the financial crisis despite a slight slowdown in the last three months of the year, official data showed today.

Supporting expectations for a bright 2014, Britain's gross domestic product rose by 0.7% in the fourth quarter, the Office for National Statistics said.

This was in line with economists' forecasts for a small reduction from the third quarter's pace.

Today's quarterly GDP figure took Britain's full-year growth for 2013 up to 1.9% from just 0.3% the year before. 

This is the highest since 2007, although total output is still 1.3% below the pre-financial crisis peak reached in the first three months of 2008 - a weaker situation than in almost all other big advanced economies.

The rapid rate of growth - which is above Britain's long-run trend - is likely to increase speculation about when the Bank of England will raise record-low interest rates.

Bank of England Governor Mark Carney has said there is no need for rates to rise any time soon, as Britain's total output is still well below pre-crisis levels. 

But unemployment has fallen far faster than the bank forecast in August, raising questions about what long-term inflation pressures might be building in the economy.

A long list of economic indicators over the last few months have suggested Britain's economy is recovering faster than either policymakers or independent forecasters predicted.

Data from the Confederation of British Industry released earlier today suggest 2013's strong growth had continued into January.

Figures last week showed British unemployment plunged to very near the Bank of England's level for considering an increase in interest rates, but the central bank stressed it would be in no rush to act.

Output in Britain's service sector - which makes up more than three quarters of GDP - rose by 0.8% in the fourth quarter, maintaining its pace from the previous months, which was the fastest in a year.

But industrial output growth slowed to 0.7% from 0.8%, as the strongest manufacturing growth since the third quarter of 2010 proved insufficient to offset falling North Sea oil and gas output. Construction - which accounts for less than 8% of GDP - fell by 0.3%, reflecting a weak November.

A survey yesterday showed British households have a growing sense of job security and declining fears that inflation is driving prices higher. 

So far, the UK economic recovery has been fuelled by consumer spending and an upturn in the housing market, although Bank of England policymakers over the last week have said they expect business investment to begin making a contribution later in the year.

Critics of the government's economic policies say its attempts to revive the housing market will not help bring about the long-hoped for rebalancing of Britain's economy towards more manufacturing and exports.

The ONS's preliminary estimates of GDP are among the first in the European Union, and are based partly on estimated data. On average, they are revised by 0.1-0.2 percentage points up or down by the time a third estimate is published two months later.