UK economy shows signs of recovery ahead of Carney's start

LONDON Fri Jun 28, 2013 8:38pm BST

Mark Carney takes part in a news conference in Ottawa November 26, 2012. REUTERS/Chris Wattie

Mark Carney takes part in a news conference in Ottawa November 26, 2012.

Credit: Reuters/Chris Wattie

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LONDON (Reuters) - Britain's slow economic recovery is picking up a bit more speed, data showed on Friday, just in time for the arrival next week of the country's next central bank chief Mark Carney.

The services sector, which accounts for about three quarters of British gross domestic product, grew slightly more than expected in April.

Consumer confidence and annual house price growth also increased, both showing their strongest readings in over two years.

Some economists said overall growth in the second quarter could turn out to be better than the 0.5 percent predicted by the Bank of England.

Alan Clarke, an economist at Scotiabank, said growth could come in at around 0.7 percent, or possibly as high as 1 percent, though others said the bigger question was whether it would prove sustainable.

"What the incoming Governor Mark Carney has to try and work out is if this performance has 'legs', or if it will run into the sand in the second half of 2013," said David Tinsley, UK economist at BNP Paribas.

To some economists' surprise, Britain's economy avoided falling back into recession at the start of 2013 after two years of stagnation.

But data on Thursday showed that the damage wrought on the British economy by the financial crisis was deeper than previously thought, and a combination of low wages and high inflation earlier this year inflicted the sharpest quarterly drop in a generation on household living standards.

Carney starts at the Bank on Monday, taking over from Mervyn King, and will chair his first meeting of policymakers on Wednesday and Thursday.

He is not expected to push for more stimulus as early as that into his governorship, and more than half of the economists in a Reuters poll did not expect a resumption of government bond-buying by the central bank this year.

But a minority of the Bank watchers think he is in fact likely to push for more asset purchases during 2013, given the still weak state of Britain's economy.

"There is a clear motivation for the new governor to want to add more stimulus rather than allowing the committee to cross its collective fingers in the hope that nothing goes wrong this time," said Philip Shaw, an economist at Investec.

MORE SIGNS OF RECOVERY

The Office for National Statistics said output in Britain's service sector grew 0.8 percent in the three months to April, gathering pace from the 0.5 percent expansion in the first quarter, and was up 2 percent on a year earlier.

Separate data on Friday showed British consumer morale rose to its highest level in just over two years in June and British house prices rose at their fastest annual pace in nearly three years.

The brighter data add to recent signs of modest growth in manufacturing and retail.

Department store chain John Lewis said on Friday it recorded the highest ever weekly sales for the first half of the year in the week of June 22, although some of that was helped by markdowns of prices.

The ONS also said hourly productivity across all sectors of the economy was unchanged in the first quarter, ending a run of six consecutive quarters of declines, as the economy picked up.

In a sign of muted inflation pressures, unit labour costs fell 0.4 percent in the first three months of 2013 and were down 0.5 percent from a year earlier, their first drop since the end of 2010, the statistics agency said.

Less inflation pressure could eventually help reduce opposition within the Bank to more bond buying.

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