UK Economy Growth

The UK economy grew strongly during the first period of the year. According to the latest figures from the Office for National Statistics (ONS) gross domestic product (GDP) grew by a steady 0.6% in the first three months of the year. The figure pushed the annual rate of growth up to 2.2% from 1.8% in 2005. Surprisingly, manufacturing output grew 0.7% during the period - its strongest performance since 1999, buoyed by increased oil and gas output.

Meanwhile, after months of expansion, growth in the service sector slowed to 0.7% from 1.0% in the last three months of 2005. The ONS added that weaker retail sales were the main reason behind the slowdown in the service industry.

These latest figures suggest that a cut in interest rates is unlikely as the growth matched forecasts set out by the Bank of England in its February inflation report. "This is not a growth rate that is in need of any further rate policy assistance from the Bank of England," said David Brown, chief European economist at Bear Stearns. "The UK seems to be running close to optimum output growth potential and the MPC will be turning a deaf ear to any calls for further easing." The rate of interest has now remained unchanged for the last eight months.

This has led some commentators into believing that things are improving for the UK economy. The British Chambers of Commerce (BCC) state that while the latest GDP figure confirmed the worst could be over for the economy, "the upturn is very fragile and many risks persist". The BCC therefore suggests that the Bank of England keep a close on the economy and react quickly if necessary.


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