LONDON (Reuters) - Britain’s economy racked up its fastest growth in more than six years in early 2014, but a Bank of England interest rate rise is not imminent while the country makes up ground lost after the financial crisis.
Output jumped 3.1 percent in the first quarter compared with the same period last year, the biggest rise since the late 2007, the Office for National Statistics said.
Gross domestic product rose a quarterly 0.8 percent, gaining a bit of speed from the last three months of 2013. There were also signs of a broader recovery as manufacturing picked up.
But both the yearly and quarterly growth figures were slightly below forecasts in a Reuters poll. The pound weakened and British government bond prices briefly rose after the data.
“There does not seem to be much of a case for the Monetary Policy Committee to push official interest rates up this year, and indeed we continue to suspect that the idea of a tightening can be shelved until after the election in May next year,” said Philip Shaw, an economist with Investec, a bank.
The data should help Prime Minister David Cameron as he tries to convince voters to return his Conservative Party to power.
“Today’s figures show that Britain is coming back,” finance minister George Osborne said. “But we can’t take that for granted. We have to carry on working through our long-term economic plan.”
Bank of England Governor Mark Carney was quoted as saying in a newspaper interview published earlier on Tuesday that the economic recovery is starting to broaden and there are early signs that it will be sustainable.
But another policymaker, Ian McCafferty, warned of the risks of raising interest rates too late if the Bank is to carry out its plan to raise rates only gradually.
The economy remained 0.6 percent smaller than it was in the first quarter of 2008. Excluding the oil and gas sector, which is in decline, output was 0.3 percent higher than its previous peak.
Although Britain is expected to grow more strongly than any of the other Group of Seven economies this year, many rich countries have already recovered their pre-recession size.
Britain’s slow recovery is partly because of the size of its banking sector, which took a huge hit in the financial crisis. But critics say it is also because the government opted for sharp curbs on public spending.
The opposition Labour party has switched its line of attack away from the government’s failure to revive growth to what it calls the cost of living crisis.
Britain’s population has grown since the financial crisis, meaning that output per head is still well below pre-crisis levels, and driving a decline in real wages that is only just starting to level out.
Nonetheless, a survey of British businesses and consumers found confidence was at its highest since at least 1990. The reading was strong enough to push up the entire European Union-wide European Commission’s Economic Sentiment Index for April.
Floods in many areas of Britain in February appeared to have had little effect on overall growth, although construction was hit by bad weather in January and February, the ONS said.
Output in services - which make up more than three quarters of GDP - rose by 0.9 percent in the first quarter after growing by 0.8 percent in the last quarter of 2013. That was the sector’s fastest growth since the third quarter of 2012.
Industrial output was 0.8 percent higher - its strongest growth since the second quarter of 2010. Construction, which accounts for about 6 percent of GDP, grew by 0.3 percent.
George Buckley, an economist with Deutsche Bank, said it was encouraging that all three sectors were expanding.
“We expect growth to ease to something more sustainable during 2014,” Buckley said in an email to clients.
Writing by William Schomberg; Editing by Larry King