UK economy grows but jobs may not follow

Thu, 25/07/2013 - 13:24 -- nick

The economy in the UK grew by 0.6% in the last three months, creating hope that more jobs will follow.

This followed a rise of 0.3% last quarter, and the country has now grown by 1.4% over the last year.

All sectors - construction, manufacturing, services and agriculture - showed an improvement, the Office for National Statistics (ONS) revealed.

Services, including banking, retail and insurance, make up four-fifths of the economy and led the way in increasing its output.

The ONS sounded a note of caution though: figures are early estimates based on less than half the data, and may be revised up or down later.

The financial downturn has been brutal, losing the UK 7.2% of its economy, and the latest figures show the country is still 3.3% below its peak.

Richard Driver, an analyst at Caxton FX, gave the news a cautious welcome:

"This isn't a figure that should be shouted from the rooftops by any means, but given where we have been and where most other global economies are now in terms of economic growth, it is more than satisfactory.

"The challenge now is to maintain this pace of growth in the second half of the year and the prospects look highly uncertain in this regard."

Chancellor George Osborne was more robust, saying: "These figures are better than forecast.

"Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend - but there is still a long way to go and I know things are still tough for families."

Most economists had been predicting a 0.6% or higher rise in GDP.

Responding for Labour, shadow chancellor Ed Balls welcomed the improvement "after three wasted and damaging years of flat-lining", but warned that "families on middle and low incomes are still not seeing any recovery in their living standards".

Economists are doubtful that the UK can maintain significant growth because wages and benefits are growing far slower than inflation, meaning most people have less money to spend.

They are also saving less, raising questions on how well they will be able to withstand further financial shocks.

Business investment, required to create significant numbers of new jobs, has also seen a big drop, and is still 30% below its peak.

Companies are sitting on cash instead of using it productively, showing the economy needs to make more progress to give them the confidence to expand.

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