By Marcus Leach
News that the economy grew by 0.6% in the three months to June has been widely welcomed in the business world.
Official figures from the Office for National Statistics (ONS) revealed a 0.6% growth in GDp, which whilst not a huge level of growth, it is another step in the right direction.
The growth in the second quarter was twice that seen in the first three months of this year and will spark hopes of a sustained, albeit, slow revival in economic fortunes.
“The GDP figures are encouraging and will help to further build business and consumer confidence. For the first time since the financial crisis the economy looks and feels as if there is a tailwind behind it," Graeme Leach, Chief Economist at the Institute of Directors, said.
"We are optimistic that the current rate of quarterly growth can be maintained through the second half of 2013 and into 2014. Indeed, if one looks to the current broad money supply (the amount of cash and bank deposits) as a leading indicator of economic activity, quarterly growth might actually accelerate slightly over the next 6 months.
“Second quarter GDP growth of 0.6% is in line with trend growth but not above it. Consequently there is little reason to expect an imminent change in monetary policy by the MPC. The figures won’t have changed views on the size of the output gap and the amount of spare capacity in the economy.
"The MPC will also be aware that despite the tailwind to growth from the money supply, significant headwinds remain. Key headwinds include the squeeze on household income from inflation running ahead of earnings, bank balance sheet reduction and the ever present threat of a return of the euro crisis.
“Even if a more sustained period of above trend growth was to occur, such a recovery would have within it the seeds of its own destruction. The faster GDP growth becomes the sooner we’ll see a normalisation of interest rate policy.”
Elsewhere Richard Driver, Caxton FX Analyst, believes that whilst this figure shouldn't be bellowed from the roof tops, it is a huge step in the right direction and a welcome boost to confidence.
"Whilst in line with expectations, 0.6% is an encouraging result and speaks of a burgeoning economic recovery that is taking shape here in the UK," he said.
"This isn’t a figure that should be shouted from the roof tops 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.
"It certainly takes the pressure off George Osborne and should be enough to deter the MPC from doing more QE over the coming months. A long-term commitment to low interest rates should be enough for the BoE at current growth levels.
"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."
Join us on