U.K. GDP Growth Accelerates On Services Output

(RTTNews) - U.K. economic growth accelerated in the second quarter driven by an improvement in services output, which has again fueled debate over the timing of the interest rate hike.

Gross domestic product grew 0.7 percent sequentially, in line with forecast, following a 0.4 percent rise in the first quarter, preliminary estimate from the Office for National Statistics showed Tuesday.

The 0.7 percent growth implies that GDP per head would be "broadly equal" to the pre-economic downturn peak in the first quarter, the ONS said.

GDP was 2.6 percent higher in the second quarter compared with the same quarter a year ago. The annual growth also matched expectations.

The economic fundamentals look broadly positive for the U.K., particularly for the consumer, and growth is expected to be healthy through the second half of the year, IHS Global Insight Chief Economist Howard Archer, said.

Although today's data may give some ammunition to the more hawkish members of the Bank of England's Monetary Policy Committee, Vicky Redwood, chief UK economist at Capital Economics, still thinks that a rate rise will be delayed until next year.

BoE Governor Mark Carney said this month the interest rate hike decision will become clearer around the turn of the year.

Chancellor George Osborne on Tuesday announced the appointment of Gertjan Vlieghe as external member of Bank of England's rate-setting committee.

Vlieghe replaces David Miles whose term ends in August. Vlieghe will be appointed for an initial three year term which will take effect from September 1.

ONS data showed that the dominant services and production logged expansion, while construction failed to expand in the second quarter.

Services expanded 0.7 percent, which was faster than the 0.4 percent growth posted a quarter ago. Likewise, growth in production accelerated to 1 percent from 0.2 percent.

Manufacturing output fell 0.3 percent, while mining surged up 7.8 percent.

At the same time, construction output remained flat after contracting 0.2 percent. Agriculture output was down 0.7 percent but slower than first quarter's 2.3 percent decline.

Another report from ONS said the latest index of services suggested that output increased by 0.3 percent in May from April, when it climbed 0.2 percent. The monthly growth rate came in line with expectations. On a yearly basis, services output advanced 2.7 percent.