City fears UK’s growth will be unsustainable

Tim Wallace
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THE UK economy grew by 0.6 per cent in the second quarter, doubling its pace of growth and giving a boost to George Osborne, who hopes he is at last escaping the stagnation that has dogged the coalition since it took office in 2010.

Services, manufacturing and construction all grew in the three-month period, a turnaround from previous years when construction had fallen sharply.

However, City analysts fear the growth could be imbalanced and unsustainable, based on cheap credit and artificial stimulus rather than a real rebalancing of the economy towards higher-growth, more productive sectors.

“The strength in services is encouraging given this sector accounts for a large chunk of the economy, but the weak performance of the manufacturing sector is somewhat disappointing and highlights the UK’s challenge to achieve more broadly balanced growth,” said Barclays economist Blerina Uruci.

And Alan Clarke from Scotiabank warned positive industry surveys and housing market figures may give a misleading picture of the future path for growth.

“We have our concerns that beneath the surface the fundamentals are less favourable and we are reluctant to extrapolate the upward trajectory for growth much beyond early 2014,” he said.

Clarke warned consumers could be squeezed hard again in the near future: “We expect inflation to prove much higher than is currently implied by the linker market.”