Strong UK business investment signals balanced recovery taking hold

London's famous Gherkin

London’s famous Gherkin

Britain’s recovery strengthened in the second quarter, as official figures show business investment surpassed its pre-crisis peak in 2013 and household disposable income outpaces inflation

UK growth is strengthening amid a more balanced and sustainable recovery, official data showed on Tuesday.

Revised growth estimates showed the UK economy grew by 0.9pc in the three months to the end of June, 0.1 percentage points higher than a previous estimate of 0.8pc, according to the Office for National Statistics (ONS).

The figures, which bring Britain in line with pan-European accounting standards, confirmed the UK exited the Great Recession in the third quarter of 2013, and not the second quarter of this year. Output now stands 2.7pc above the pre-crash high, compared to 0.2pc previously. Earlier estimates for the period between 2010 and 2012 showed the economy shrank by 6pc in the wake of the financial crisis and not 7.2pc as previously thought.

Business investment remained strong, expanding by 3.3pc in the second quarter. Investment by companies is now at its highest level in nine years, and Tuesday’s data showed business investment surpassed its pre-crisis peak in the final quarter of last year. The big upward revision was mainly due to the reclassification of research and development (R&D), which is now considered “investment in assets” rather than as an “intermediate consumption expenditure”.

On an annual basis, business investment increased by 11pc in the second quarter, representing the largest annual increase since the first quarter of 2007. Consumer spending, which powers two-thirds of the UK economy, grew by 0.6pc, representing a twelfth consecutive quarterly increase.

Household disposable income, adjusted for inflation, also increased by 2.2pc in the second quarter, following a decline of 0.6pc in the first quarter.

However, growth in the first quarter was revised down to 0.7pc, down from an earlier estimate of 0.8pc.

Britain’s trade deficit also deteriorated in the second quarter. Exports fell by 0.4pc in the second quarter, mirroring the first quarter decline. Most economists expect no growth from trade this year.

The ONS also said the economy grew by 1.7pc in 2013, unchanged from a previous estimate. This represents the fastest annual growth since 2007, when the economy expanded by 2.6pc.

The European accounting standards – known as ESA10, also require countries to estimate how much the illegal sex and drugs industry contributed to the economy in recent years.

The ONS data showed illegal drugs and prostitution added around £11bn a year to UK gross domestic product (GDP) between 1997 and 2013.

Illegal drugs are estimated to have added £6.7bn in year in current prices, while prostitution is thought to have added £4.3bn a year to UK growth.

Source: http://www.telegraph.co.uk/

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