Growth in GDP surpasses economists’ expectations and may boost consumer spending

Financial News

UK GDP grew by 1.1 per cent in the second quarter of the year beating the expectations of economic experts. The figure was double the amount predicted and the biggest increase in the past four years illustrating the upward growth of the economy.

Sterling gained more than one cent over the dollar and the euro fell to a low of 83.99 pence.

Asad Zangana, European Economist at asset management firm Schroders, said: “The latest estimates are a very positive surprise which should provide a boost to consumer confidence heading into the second half of the year”.

He continued: “Clearly there is now little evidence to support the idea of any additional stimulus in the form of quantitative easing, and Andrew Sentance’s view that interest rates should rise soon, has just gained more weight”.

Mr Sentance, Monetary Policy Committee member, had called for a 0.25 per cent increase in the bank rates – the first member to vote for an increase in almost two years – but was blocked by colleagues.

Before the second quarter statistics were revealed, Geraldine Concagh, economist at AIB Group Treasury  said: “Sterling got a lift from the better-than-expected retail sales numbers which means consumer spending should give a boost to growth for the second quarter.

She added: “I would expect if it’s a good number it will be positive for sterling”.

The higher than expected growth is welcome news for the economy as a whole and may go some way to allaying fears of a double dip recession.

However, the FTSE fell amid concerns that an increase in growth could lead to an earlier than expected rise in interest rates. Higher interest rates would hit the profitability of UK businesses, although they would certainly be welcomed by beleaguered savers who are struggling to get a return above inflation from their savings.