European
UK economy grew at annual 3% rate in Q1 2007 fuelling speculation that the Bank of England will raise its key interest rate to 5.75% next week
By Finfacts Team
Jun 29, 2007, 10:09

Source: UK Office for National Statistics

Real GDP quarterly growth (at constant prices)

The UK economy grew faster than expected in the first quarter of 2007 from a year earlier as services and public spending expanded more than previously estimated.

Gross domestic product rose at an annual 3 per cent rate from the first three months of 2006, the UK Office for National Statistics said today. The previous estimate was 2.9 per cent while growth in the quarter was unchanged at 0.7 percent.

Bank of England Governor Mervyn King said  on Thursday that economic expansion has proved resilient to four interest-rate increases and there are ``upside'' risks to inflation. His minority vote this month for an interest-rate increase has fuelled speculation that the Monetary Policy Committee will raise the Bank of England's key interest rate to 5.5% next week. 

In the first quarter of 2007 there is strong growth in services and construction industries. Production fell by 0.1 per cent, within which manufacturing output was down 0.4 per cent. This was the first quarter of manufacturing decline since 2005 quarter four. Services grew by 0.9 per cent, within which the business services and finances industries grew by 1.0 per cent and transport, storage and communication industries growth rose by 1.6 per cent. Government and other services showed more moderate growth of 0.5 per cent on the quarter.

Household expenditure rose by 0.5 per cent, following 1.1 per cent growth in the previous quarter, due to weaker spending on goods. Expenditure compared with the same quarter a year ago was up 2.9 per cent, the strongest since 2004 quarter four.

Government final consumption expenditure rose by 0.5 per cent in the first quarter of 2007.

The deficit in net exports in 2007 quarter one widened to £9.6 billion from £9.5 billion in the previous quarter; the exports of goods fell by 2.5 per cent while imports fell by 0.9 per cent.

Compensation of employees, measured at current prices, rose by 0.8 per cent, a decrease on the previous quarter's growth of 1.2 per cent due to a fall back in employers’ special contributions to pension funds.

The household saving ratio fell to 2.1 per cent from 3.9 per cent in the previous quarter, reflecting higher taxes, spending and interest payments combined with lower employers' special contributions to pension funds.