UK Q1 GDP quarterly growth confirmed at 0.7 pct, revised up to 2.9 pct yr-on-yr

May 25, 2007 - The services sector helped the UK economy expand above its long-run average for the fifth quarter running in the first three months of the year, official figures confirmed today.

In its second estimate for the first quarter, the office of National Statistics said the UK economy grew by 0.7 pct from the previous quarter.

That was unrevised from the previous estimate and in line with expectations.

This is the third quarter running that the UK has grown at a 0.7 pct rate and means that growth has now been above its trend rate -- estimated by most commentators at between 0.6-0.7 pct -- for five consecutive quarters.

Above-trend growth has been one of the major factors behind the Bank of England's decisions to raise borrowing costs on four occasions between last August and May. Interest rates are now at a six-year high of 5.50 pct and are expected to rise further, possibly as soon as next month.

This view may be bolstered by the rise in the GDP data's price component. According to the statistics office the deflator rose by an annual 3.2 pct, the highest rate since the fourth quarter of 2003.

The income indicator was also high, with compensation of employees rising by 2.0 pct in the first quarter on the back of strong growth in average earnings, mainly driven by city bonuses. The rate is up from 0.9 pct in the previous quarter and the highest rate since the fourth quarter of 2004.

Today's data also showed that GDP rose by 2.9 pct on a year-on-year basis, up on the previous estimate of 2.8 pct and above expectations for an unchanged estimate. However, it was down on the 3.0 pct growth recorded in the fourth quarter.

On the expenditure side of the accounts, the statistics office said household expenditure rose by 0.6 pct during the quarter after rising 1.0 pct in the fourth quarter.

Growth was driven by consumption of goods and services.

On a year-on-year basis, household expenditure was 3.1 pct higher on the same quarter in 2006, and up on the fourth quarter's equivalent of 2.5 pct.

Meanwhile, government expenditure rose by 0.4 pct in the latest quarter for a 2.4 pct annual gain.

The statistics office revealed that growth in the fourth quarter was again driven by the services sector, which makes up 74 pct of overall GDP.

On a quarter-on-quarter basis, the services sector grew by 0.8 pct, down on the 0.9 pct recorded in the previous quarter. On an annual basis, growth in the sector was 3.5 pct, unchanged on the previous quarter's rate.

All sub-sectors within the services sector did well, with distribution, hotels and catering up a quarterly 0.9 pct for a 3.2 pct annual gain, transport, storage and communications up 1.4 pct and 3.6 pct, business services and finance up 1.0 pct and 5.1 pct, and government and personal services up 0.4 pct and 1.6 pct.

The picture on the industrial front was less rosy, however.

Industrial production, which accounts for around 18 pct of UK GDP, was unchanged on the previous quarter following the 0.2 pct quarterly decline recorded in the fourth quarter of 2006.

On a year-on-year basis, industrial production saw output rise by 0.2 pct, down on the fourth quarter's 1.0 pct.

Within the total, manufacturing output, which accounts for around 14 pct of UK GDP, was down 0.3 pct from the fourth quarter. In that quarter, output was unchanged. Year-on-year, manufacturing output was up 1.4 pct, down on the 2.7 pct recorded in the fourth quarter of 2006.

Meanwhile, extraction output was up a quarterly 1.3 pct for a 6.4 pct annual fall, while utilities output rose a quarterly 1.3 pct for a 3.3 pct year-on-year decline.

Elsewhere, construction output, which accounts for around 6 pct of GDP, saw output rise 0.8 pct quarter-on-quarter for the second quarter running, giving an annual increase of 2.7 pct after 2.9 pct growth in the fourth quarter.

Finally, agriculture was revised down 0.1 percentage point to a 0.5 pct quarterly rise against the 0.5 pct drop recorded in the fourth quarter. On a year-on-year basis, agriculture output, which accounts for 1 pct of GDP, was down 0.8 pct against a 1.9 pct decline recorded in the fourth quarter.

Elsewhere, the statistics office said gross fixed capital formation, a broad measure of business investment, rose by 1.7 pct during the quarter, driven by a 8.0 pct rise in government investment, and sharply higher than the 2.6 pct increase seen in the fourth quarter.

On a year-on-year basis, gross fixed capital formation was 7.7 pct higher.

Business investment, which accounts for around 60 pct of gross fixed capital formation, fell by 1.3 pct from the fourth quarter, down from growth of 4.5 pct increase the previous quarter. On a year-on-year basis, business investment was up 9.6 pct.

Finally, the statistics office said net trade had no contribution to GDP.