UK economic growth probably kept up pace in 2Q

July 21, 2007 - 0:0

LONDON (Bloomberg) -- The UK economy probably maintained its pace of growth in the second quarter, as both services and manufacturing expanded, a survey of economists shows.

Gross domestic product increased 0.7 percent from the first quarter, when it grew at the same rate, according to the median of 36 forecasts in a Bloomberg News survey. The annual growth rate probably slipped to 2.9 percent from 3 percent, according to the survey. The report, the first for second-quarter growth among Group of Seven countries, will help Bank of England policy makers decide whether to keep raising interest rates after five moves in the past year. Inflation has exceeded the bank's 2 percent target for 14 months, underpinned by rising property prices and a boom in London's financial services industry. “It's very unlikely growth will have slowed because the short-term indicators are still very strong,” said Amit Kara, an economist at UBS AG in London, who formerly worked for policy makers at the central bank. “There is a risk that rates could go up to 6 percent.” Policy makers voted 6-3 to raise the benchmark rate to 5.75 percent on July 5, with some arguing that demand could weaken “quite sharply” later this year because earlier interest-rate increases “have yet to be felt.” ---------------Bank's forecasts Faster inflation has yet to feed through to wages. Pay awards rose 3.2 percent in the second quarter from a year earlier, a survey by Industrial Relations Services showed on Friday. That's down from a 3.3 percent gain in the quarter through May. The Bank of England's May forecasts show that the UK economy will expand about 3 percent this year, the fastest since 2004. With manufacturing and investment picking up, consumer spending may have to cool to prevent companies from raising prices, policy maker Andrew Sentance said July 10. Services, which account for three-quarters of the economy, increased 0.9 percent in the first three months of the year, while consumer spending rose 0.5 percent, less that half the rate of the fourth quarter. Service industries unexpectedly grew at the fastest pace in five months in June, a survey by the Chartered Institute of Purchasing and Supply showed on July 4. Retail sales rose for a second month in June, the government said. Manufacturing production reached the highest in almost six years in May, buoyed by exports of chemicals and consumer goods to the rest of Europe. The pound rose to a 26-year high of $2.0548 this week as investors bet that the central bank's key interest rate will reach at least 6 percent this year from the current level of 5.75 percent. The implied rate on the December futures contract was at 6.29 percent yesterday. The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade