September 10, 2018 / 8:35 AM / 3 months ago

UK enjoys fastest growth in almost a year

LONDON (Reuters) - Britain reeled off its fastest economic growth for nearly a year in the three months to July thanks to strong consumer spending lifted by the World Cup and unusually warm weather, official figures showed on Monday.

Gross domestic product in the three months to July was 0.6 percent higher than in the previous three-month period, the Office for National Statistics said, gathering pace from 0.4 percent growth in the three months to June - and at the top end of forecasts in a Reuters poll.

This was the fastest growth since August 2017 and should reassure the Bank of England, which raised interest rates last month for the second time in more than a decade, forecasting third-quarter growth of 0.4 percent but only a lacklustre 2018 expansion of 1.4 percent.

Sterling was little changed on the data, which economists said showed an economy growing better than hoped after a slow start to 2018, even taking into account the effect of one-off factors.

“Far from running out of steam, UK activity has picked up after a very poor start to the year. Monthly data is choppy, but this pick-up shows that the UK is entering the crucial phase of Brexit talks in better shape than seemed likely six months ago,” Deloitte economist Ian Stewart said.

Britain’s economy has slowed since the June 2016 vote to leave the European Union, its annual growth rate slipping from top spot among the Group of Seven rich nations to jostling with long-term laggards Japan and Italy for bottom place.

Some business surveys have shown firms delaying investment plans while the terms on which Britain will leave the EU on March 29 continue to remain unclear, posing the risk of disruption to existing trade arrangements.

Monday’s data showed that compared with a year earlier, GDP growth in July alone was up 1.6 percent, while it was 0.3 percent higher than in June, again above poll forecasts for 1.4 percent annual growth and a 0.2 percent monthly gain.

Consumers have been squeezed for more than a year by the jump in inflation which followed the pound’s tumble after the 2016 referendum, especially as wages have failed to keep up.

That said, in recent months industry surveys have shown that an unusually warm summer encouraged many Britons to splash out on drinks and pub and restaurant visits.

Last week, closely watched purchasing managers’ data pointed to third-quarter growth of 0.4 percent, as a pick-up in services activity outweighed a slowdown in manufacturing and construction activity.

Monday’s data showed that Britain’s dominant services sector grew by 0.6 percent in the three months to July, its biggest rise since January 2017, while 3.3 percent growth in the much smaller construction sector was the fastest since February 2017.

“We suspect, given the strength in the ‘distribution, hotels and restaurants’ sub-sector, the warm weather was a big help here, and probably so too was England’s performance in the World Cup,” Investec economist Philip Shaw said.

A fall in factory output largely reflected the volatile pharmaceuticals sector, he added.

Industrial output contracted by 0.5 percent over the period, hurt by falls across manufacturing, oil and gas extraction and electricity generation, and second-quarter construction orders fell sharply.

People enjoy the beach, as Liverpool's skyline is seen in the background, in New Brighton, Britain, July 31, 2018. REUTERS/Phil Noble

Nonetheless, Britain’s trade deficit in both goods alone and goods and services fell to its smallest since February, beating economists’ forecasts in a Reuters poll.

The goods trade deficit dropped to 9.973 billion pounds ($12.90 billion) in July from 10.679 billion the month before, and the total trade deficit in goods and services fell to just 111 million pounds.

Britain’s deficit in goods trade with the European Union was its smallest since April 2016, while global goods exports in the three months to July grew 2.3 percent.

Editing by Mark Heinrich

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