Export surge drives UK economy to 10th quarter of growth

[LONDON] UK exports picked up in the second quarter, helping trade contribute to the economic expansion by the most in four years.

Exports rose 3.9 per cent from the previous three months, while imports gained just 0.6 per cent. Gross domestic product increased 0.7 per cent in the period, including a 1 percentage point addition from net trade, the Office for National Statistics said in London on Friday.

The report also showed that consumer-spending growth eased slightly to 0.7 per cent and the pace of government expenditure held at 0.9 per cent. Business investment increased 2.9 per cent on the quarter, the most in a year, and was up 5 per cent from a year earlier.

Britain's strengthening economy and accelerating wage growth are pushing Bank of England policy makers closer to their first interest-rate increase from the current record low. While Governor Mark Carney has said tighter monetary policy is on its way, market volatility sparked by China's currency devaluation has clouded the timing for central banks to step back from emergency settings.

While the economy has regained the ground lost from the recession, GDP per head is about 0.1 per cent below its previous peak in the first quarter of 2008, the ONS said.

However, the report suggests that the rebalancing of the economy, long sought by Prime Minister David Cameron, may be starting. Exports surged 8.1 percent from a year earlier, the most in four years.

Overall growth continues to be led by services, the largest part of the economy, which expanded 0.7 per cent, the same as the ONS's previous estimate. Production growth was revised down to 0.7 per cent from 1 percent.

A drop in oil and food prices has kept the UK inflation rate close to zero for much of the year. That's giving Britons scope to spend and fueling concern among some policy makers that inflation pressures may be brewing.

Inflation is the theme at the Kansas City Federal Reserve's annual symposium in Jackson Hole, Wyoming today this week. Officials and economists will also discuss the market ructions stemming from China's slowdown, which have cast doubt on whether the Fed will raise rates next month.

BLOOMBERG