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UK economy grows 0.7% in second quarter

UK economic growth has accelerated to 0.7% in the second quarter of the year, helped by a big jump in oil and gas production, official figures have shown.

This compares with growth of 0.4% in the first quarter of the year. The Office for National Statistics (“ONS”) said the growth meant that GDP per head was now back to its pre-crisis peak in 2008.

Domestic demand is expected to remain strong, as wages rise and with the temporary effects of low inflation boosting consumer spending.

The ONS said there was evidence that tax cuts in the March Budget helped to push up oil and gas production.

Data showed the “mining and quarrying” component of industrial output, which includes oil and gas extraction, rose by 7.8% compared with the previous quarter. This represents the biggest increase in more than two decades, with the surge contributing more than 0.1% to GDP growth[1].

The acceleration in growth is likely to fuel speculation about an early rise in interest rates, which have languished at 0.5 per cent since 2009. The pound strengthened against the euro, rising from 1.403 to 1.414 as currency traders bet that the GDP boost would prompt the Bank of England to move sooner rather than later.

According to Chancellor George Osborne, the figures show that the UK economy is “motoring ahead.” In an interview with the BBC, he stated:

“Our economy [is] producing as much per person as ever before. But there are clear risks out there in the world economy from the Eurozone to what’s happening in the world’s stock markets, and so it’s vital that we stay on the road that we’ve set out on.”

[1] Szu Ping Chan, “UK recovery ‘motors ahead’ as GDP per head returns to pre-crisis levels”, www.telegraph.co.uk