British growth remains robust

The City believes UK growth may disappoint the Treasury

The slowdown in British economic growth seems to have halted, and even slightly reversed.

A revision of UK gross domestic product data showed that the economy grew by 1.3% year on year in the second quarter, slightly up from an earlier 1.2% estimate.

The revision reflected "strength in the consumer sector", as the UK's High Street boom continued, said Alan Castle, UK economist at Lehman Brothers.

"Overall, GDP growth is recovering and we are optimistic on the second half of this year, although a lot depends on what's happening in the rest of the world."

The data helped the revival in London shares, with the FTSE 100 index, which had stood in negative territory, closing up 56 points at 3,907.

Rising unemployment?

The data comes two days after International Monetary Fund chiefs warned that the UK's economy, with those of other major Western countries, would expand by less had previously been hoped.

This year the UK economy would grow by 1.7%, compared with a previous forecast of 2%, the IMF said.

In 2003, expansion would hit 2.4%, as opposed to the 2.8% previously hoped.

On Friday, the Centre for Economics and Business Research think tank also reduced its growth estimates, warning of the impact of lower stock prices, and of lower levels of business investment than it had earlier predicted.

CEBR researchers also warned that company profits would come under further strain, as slower wage growth braked spending by Britons.

Incomings and outgoings

Slightly more robust economic growth is good news for Britain's balance of payments, which remains firmly in the red.

Separate figures released on Friday showed that, as a whole, Britain spent £4bn more than it received in income during the second quarter of the year, a modest rise on the previous quarter.

A high current-account deficit could spell bad news for the pound, undermining investor confidence in Britain's ability to manage its finances.