Schroders: UK economy passes pre-crisis peak

The release of the preliminary estimate for second quarter UK GDP shows that the economy has surpassed its previous peak set in 2008.

25.07.2014 | 11:44 Uhr

GDP increased by 0.8% compared to the first quarter – in line with consensus estimates – and by 3.1% on a year-on-year basis. GDP is now 0.2% higher than its previous peak in Q1 2008, thanks to the sixth consecutive quarter of positive growth. Almost all of the growth in the Q2 came from services. The production sectors grew by 0.4%, while the construction sector contracted by 0.5%.

By international comparisons, the UK economic recovery has been slow. For example, Germany surpassed its pre-crisis peak in GDP in Q1 2011, while the US did so the following quarter. In Q1 2014, Germany’s GDP was already 3.8% above that pre-crisis peak, while GDP for the US was 5.5% higher. The UK economy has a lot of catching up to do. 

Overall, another strong quarterly performance for the UK as signalled by business surveys. The IMF’s recent forecast upgrade for UK GDP puts it as one of the best performers in the G7 for this year. While we expect a slight slowdown in growth in the second half of the year, the strong momentum that has been built should help broaden out the economic recovery further. Looking ahead, the Bank of England is closely examining the case for raising interest rates and looking for signs that spare capacity is being utilised. The latest GDP figures support this, along with the rapidly falling unemployment rate. However, falling average wages in real terms is likely to prompt a cautious approach. 

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