British recovery shoots ahead in second quarter

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Britain's economy sprang a big surprise with growth of 1.1 percent in the second quarter, the strongest pace since 2006 as the recovery strengthened, official data showed on Friday.

The figure was almost double forecasts for 0.6-percent growth in the April-June period, and builds on the economy's modest emergence from a record-length recession late last year.

"Gross domestic product (GDP) increased 1.1 percent in the second quarter of 2010. The increase in output was due mainly to increases in business services and finance and construction," the Office for National Statistics (ONS) said in a statement.

Economists were stunned by the news, but warned about the impact of the British government's austerity measures that are aimed at tackling a huge public deficit, amid ongoing market jitters about soaring European state debt.

"This is an absolutely incredible growth number -- way above all expectations and the best performance since the first quarter of 2006," said IHS Global Insight economist Howard Archer.

"Furthermore, the pick up was widespread across all sectors with service sector activity picking up sharply, manufacturing output humming and the construction sector returning to growth with a vengeance."

The recovery gathered pace after 0.3-percent expansion in the first three months of the year.

Despite the impressive GDP data, British finance minister George Osborne warned that the job was not finished in repairing the troubled economy.

"Today's figures show the private sector contributing all but 0.1 percent of the growth in the second quarter, and put beyond doubt that it was right to begin acting on the deficit now," Osborne said in response.

"While I am cautiously optimistic about the path for the economy, the job is not yet done.

"The priority now is to implement the budget policies which support rebalancing and help ensure ... sustained growth."

Shadow finance minister Alistair Darling, who was Osborne's predecessor in the previous Labour government, argued that brutal public spending cuts could jeopardise the recovery.

Darling said the Conservative-Liberal Democrat coalition government "will have to accept responsibility for the risks they are taking with the economy".

"This is the final nail in the coffin of the coalition's argument that things are worse than they believed before the election," he added.

The ONS added Friday that British GDP expanded 1.6 percent in the second quarter, compared with the equivalent period in 2009. That was the strongest reading since the start of 2008.

"UK second-quarter GDP is startlingly strong," added ING economist James Knightley.

"The government will likely argue that this vindicates their decision to push ahead with aggressive fiscal austerity measures in order to combat the UK's deficit and debt problems.

"However, we are cautious that confidence has weakened and business surveys suggest softer growth in the third quarter. Moreover, the wave of fiscal austerity hitting the UK will also constrain economic activity."

© 2010 AFP

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