UK economy bounces back

The UK experienced a spring revival

The UK economy has bounced back into health, after stalling earlier in the year.

The economy grew by a hearty 0.9% between April and June compared with the previous quarter, according to a preliminary estimate from the Office for National Statistics.

UK GDP growth
Quarter-to-quarter

2002 Q2: +0.9%

2002 Q1: +0.1%

2001 Q4: +0.1%

2001 Q3: +0.3%

2001 Q2: +0.6%

2001 Q1: +0.5%

2000 Q4: +0.4%

Source: ONS

The news comes as a welcome improvement on the first three months of the year when the economy barely grew at all - by a mere 0.1%.

The data on Friday also showed an increase of 1.5% on the same period last year.

According to the ONS, the UK economy has now experienced 10 years of growth since a "trough" in 1992.

Boost for manufacturing

The UK's gross domestic product (GDP) is calculated by measuring output from manufacturing, agriculture, mining, the utilities and the service industries.

The upturn in growth was led by industrial production, including the manufacturing sector.

The rebound in GDP is broadly in line with our expectations

Philip Shaw
Investec Bank

A weaker pound has eased pressure on British exports, helping manufacturers to emerge from a year-long recession.

Britain's service sector also rebounded from the previous quarter.

"The rebound in GDP is broadly in line with our expectations," said Philip Shaw, chief economist at Investec Bank.

"It's consistent with the economic recovery."

However, recent reports of a slowdown in consumer spending could mean that the Bank of England will delay raising interest rates at its meeting next Thursday.

After months of a consumer boom, it seems that the UK spenders are tightening their purse strings quicker than anticipated.

"I think the figures are sufficiently close to general expectations for the outlook regarding [interest] rates to be unaffected," added Mr Shaw.

Housing crash?

By contrast, the housing market continues to thrive, as UK buyers choose to invest their wealth in property.

But a leading economist told Radio 4's Today Programme that he believes there is a high risk of a severe correction in house prices - and possibly a crash.

Roger Bootle, founder of Capital Economics, said: "I had thought the housing market would slow of its own accord."

But he added he was increasingly coming round to the view that "it won't be a gentle slowdown, it will be a crash".

Mr Bootle's words are the latest in a string of warnings about property prices.

The British Bankers' Association also reported on Thursday that mortgage lending is beginning to slow.

Pound pressure

The BBC Breakfast business presenter Declan Curry said the value of the pound against the dollar could cause the Bank of England concern.

Despite falling against the euro, the pound has recently risen against the dollar, making British goods in the US more expensive.

Dramatic falls in the stock market could also factor in to any interest-rate decision.

Typically, diving stock markets hold back spending, denting trading for many shops on the high street.

UK retail sales fell in June for the second consecutive month, in a sign that consumer boom that has helped buoy the wider economy is running out of steam.

The deepest discounts since records began do not seem to have tempted shoppers back into the shops.