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UK sprints to rapid recovery, but it may be 'as good as it gets'.

The economy's crawl back to recovery turned into a sprint in the second quarter of the year, according to the latest data from the Office for National Statistics (ONS).

In a release that surprised even the most optimistic of City observers, the ONS said that the economy grew by 1.1 per cent during the period from April to June this year, a marked acceleration on the 0.3 per cent seen in the previous three months.

It represents an annualised growth rate of 4.4 per cent, some way above the economy's long-term trend. Evidence that the economy is growing much faster than anticipated will strengthen the hand of those at the Bank of England arguing for an early, if modest, tightening of monetary policy and a rise in interest rates.

Meanwhile inflation, according to the Bank's chief economist, Spencer Dale, is expected to stay above the official 2 per cent target for the whole of next year. The combination of rapidly rising output and "sticky" prices will also bolster the Government's case that the chance of a "double-dip" recession is overdone, and that the economy can withstand public-spending cuts and tax hikes more easily than critics suggest.

Strong bouncebacks in the construction sector – which suffered more than most in the recession – and in business and financial services were responsible for the bulk of the acceleration in growth. Although the building sector accounts for only some 6 per cent of the economy, it contributed some 0.4 percentage points of the 1.1 percentage point total gain in GDP.

The building trade saw the fastest rise in activity for half a century, albeit from an extremely depressed base. Output surged by 6.6 per cent in the three-month period. Economists said that this normalisation of activity is unlikely to be reversed.

Source : The Independent

24 July 2010
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