Howard Archer, chief UK & European economist, IHS Global Insight:
The GDP data are very encouraging, not only showing the growth rate doubling to 0.6% quarter-on-quarter but also showing positive contributions from all sectors. While the dominant services sector remains very much key to the economy’s performance, it is important that manufacturing and construction grow as well if the recovery is to develop and become broadly based. It needs to be remembered that the improved growth is coming from a low base as GDP in the second quarter was still 3.3% below the peak level seen in the first quarter of 2011.
While we suspect that the economy will struggle to sustain the second quarter growth rate, it does appear that it is genuinely moving to a firmer footing and we anticipate that it should be able to achieve steady if unspectacular expansion around 0.4-0.5% quarter-on-quarter through the second half of 2013 and then gradually pick up during 2014. As such, we expect GDP growth to come in around 1.1% in 2013 and 1.8% in 2014.
The marked pick-up in GDP growth in the second quarter is highly unlikely to deter the Bank of England from adopting forward guidance on monetary policy in August and making it absolutely clear that any rise in interest rates is a long way off. However, the much improved GDP growth does fuel belief that the Bank of England is more likely than not done on Quantative Easing, barring a marked relapse in economic activity over the coming months.
Meanwhile, second quarter GDP growth of 0.6% quarter-on-growth is a real shot in the arm for Chancellor George Osborne and provides him with useful ammunition as he defends the government’s stance on austerity.
Jeremy Cook, chief economist at the foreign exchange company, World first:
Services and manufacturing data has been largely positive through the quarter, while construction data has also been on track apart from a slip in May. Retail sales have also improved dramatically over the past few months, helped by a bounce-back in confidence, improvements in the labour market and a tightening of the gap between inflation and wages.
All of these indicators however, are still well below where we want them on a longer-term basis. I guess it just shows how far we’ve come that a return to longer term trend growth is seen as a point of celebration.
Initial estimates rarely remain unrevised and hanging any form of monetary policy tightening on this would be a grave error by the Bank of England. We’ve had more false dawns than I care to remember and we have to remember that ill winds from the Eurozone, the slowdown in China and an early withdrawal of stimulus from the US all have the ability to hurt growth in the long-run.
This is a figure that shows that we are on the mend but the situation is still very, very fragile.
Vicky Redwood, chief UK economist, Capital Economics:
The provisional estimate of Q2 GDP confirms that the recovery has gathered momentum in the last three months. The 0.6% quarterly rise was double Q1’s 0.3% increase and in line with both expectations and the picture already painted by the monthly data and the business surveys.
The sectoral breakdown showed that all sectors contributed to growth, pointing to a slightly more balanced recovery than recent data have suggested. Of course, we shouldn’t get too carried away. Even a 0.6% quarterly rise is fairly mediocre after such a deep recession and GDP is still 3.3% below its peak. And with households’ real pay still falling, bank lending flat and public sector austerity measures building, the economy may struggle to maintain its recent rate of growth in the second half of this year.
Nonetheless, evidence is building that the economy is gradually getting back on its feet. The firmer signs of recovery make it all the more important that the MPC reassures the markets that interest rates will stay low even as the recovery gathers further momentum. So the Committee is still likely to implement “forward guidance” at its next meeting.