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GDP figures better than expected

Published 30/06/2015

The figures are better than had been predicted
The figures are better than had been predicted

Britain's economy grew more strongly than previously thought in the first quarter of the year and official figures also revealed a better performance for 2014.

Gross domestic product (GDP) increased by 0.4% between January and March, up from a previous estimate of 0.3%, according to the Office for National Statistics (ONS).

The ONS added that a raft of data revisions mean the economy grew by 3% in 2014 - up from earlier estimates of 2.8%.

The latest breakdown of economic data for the first three months of the year showed real household disposable income rose at the fastest annual pace since 2001 - up by 4.5% year-on-year - helping drive growth in GDP and offset a dire quarter for UK trade.

Today's upward revision was widely expected, given that economists and the Bank of England had seen the initial estimates as being too low.

But it still marks a sharp slowdown on the 0.6% growth seen in the final three months of 2014.

Chancellor George Osborne welcomed the growth revisions, which come ahead of his summer Budget on July 8.

He said: "It is clear that our plan is laying the foundations for economic security for working people, with the three main sectors of the economy growing over the past year and business investment over 30% higher than at the start of the last parliament.

"Today's figures are another reminder that the economic plan we've pursued in Britain these last five years has increased our resilience - and we will take whatever further steps are needed to protect the UK from the new risks we see to our economic security."

Disposable incomes are rising thanks to a combination of ultra low inflation, rising wage growth and rock bottom interest rates, which is providing a welcome boost to family budgets.

While consumer prices index inflation - currently running at 0.1% - is expected to increase sharply towards the end of the year, experts believe wages will continue to outstrip rises in the cost of living.

Samuel Tombs, senior UK economist at Capital Economics, said: "Growth in households' real incomes should pick up now that real earnings are growing at pre-recession rates.

"We still think that GDP growth this year could be very close to last year's 3% rate, ensuring that the UK remains the fastest growing G7 economy for another year," he added.

The ONS said year-on-year growth in the first quarter of 2015 was also revised up, to a higher-than-forecast 2.9% from 2.5% initially.

Experts said the revisions may increase pressure on policymakers at the Bank of England to consider raising interest rates, given rising incomes and a stronger employment market.

But Chris Williamson, chief economist at Markit, said imminent rate hikes remained unlikely, particularly given the Greek crisis and its potential impact on the economy.

He said: "Any rate rise still looks some way off.

"Although still robust, economic growth has slowed to half the rate seen late last year. There are also worrying imbalances and signs of weakness in the economy, as well of course as the current heightened uncertainty surrounding 'Grexit'."

The revisions follow largely as a result of substantial changes to the ONS data for the construction sector, which the ONS said contracted by 0.2% in the first quarter, up by 0.9 percentage points on its earlier estimate.

Growth in Britain's powerhouse services sector remained unchanged at 0.4% in the quarter.

Figures also showed Britain's current account deficit - a measure of trade where the value of goods and services imported is higher than the value of goods and services exported - easing to £26.5 billion pounds from an upwardly revised £28.9 billion pounds in the fourth quarter of 2014.

But economist Howard Archer at IHS Global Insight said the first quarter deficit was still "worryingly high" - equivalent to 5.8% of GDP.

The UK's net trade was the biggest drag on first quarter growth - knocking 0.6% off GDP - not helped by the recent strength of the pound, which makes it more expensive for overseas firms to buy British goods.

The pound is trading at its highest level since 2007 against the euro, with the single currency impacted by the Greek debt crisis.

Prime Minister David Cameron cheered the first quarter growth upgrade.

He tweeted: "It's good news that the economy grew even more strongly than we thought. We can only secure our future by sticking to our long-term plan."

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