Best year for UK economy since 2007

The UK economy expanded by 0.7 per cent in the fourth quarter of 2013, ending the best year since 2007 amid growth in every sector except construction. The increase in gross domestic product followed a 0.8 per cent gain in the third quarter, the Office for National Statistics said today in London.

The strength of the economy pushed the pound to a 2 and a half year high against the dollar this month and is forcing Bank of England (BOE) officials to reconsider their forward guidance, a policy aimed at persuading consumers and businesses that borrowing costs will stay low.

BOE Governor Mark Carney, who is due to present new economic forecasts on Feb. 12, last weekend repeated that he wants to keep policy loose for some time to bolster growth that remains uneven.

“The economy does seem to be improving more consistently,” said Joe Grice, chief economic adviser to the ONS. “Today’s estimate suggests over four-fifths of the fall in GDP during the recession has been recovered.”

The pound was little changed at $1.6583 at 9:32 a.m. London time. It reached $1.6668 on Jan. 24, the highest level since May 2011. Sterling was at 82.30 pence per euro.

In 2013, the economy grew 1.9 per cent, the fastest since 2007, the ONS said. GDP in the fourth quarter was 1.3 per cent below its pre-recession peak in the first quarter of 2008.

The UK economy expanded 2.8 per cent in the fourth quarter from a year earlier, the fastest growth since the first quarter of 2008. Services, the largest part of the economy, expanded 0.8 per cent from the third quarter, when it also grew 0.8 percent. It means the sector is growing at its fastest pace since July- September last year. Manufacturing grew 0.9 per cent, and total industrial output expanded 0.7 percent. Construction fell 0.3 per cent as a result of a drop in output in November, the ONS said.

Chancellor of the Exchequer George Osborne said the figures underscored the need to persist with his plan to eliminate the budget deficit. "It is more evidence that our long-term economic plan is working," he said in a statement. "But the job is not done, and it is clear that the biggest risk now to the recovery would be abandoning the plan that's delivering jobs and a brighter economic future."

Britain is the first Group of Seven nation to report a full GDP report for the final three months of 2013. German officials estimate their economy grew by a quarter of a per cent in the period and US data due January 30th will show expansion at a 3.2 per cent annualised rate, compared with 4.1 per cent in the prior quarter, a survey of economists shows.

Bloomberg