Business

UK economy grew 0.9% in second quarter, says ONS

High rise block being built Image copyright Getty Images
Image caption The ONS now says construction output rose 0.7% in the second quarter of the year

UK economic growth has been revised up to 0.9% for the second quarter of the year by the Office for National Statistics (ONS), compared with a previous estimate of 0.8%.

UK GDP was 3.2% higher in the second quarter compared with a year earlier.

Revised ONS figures also show the UK economy surpassed its pre-recession peak in the third quarter of 2013.

Previously, this was thought to have been achieved in the second quarter of 2014.

The figures from the ONS include a new methodology for calculating gross domestic product (GDP). The new measure includes factors such as spending on research and development, as well as the economic contribution made by drug dealers and prostitutes.

The ONS now estimates that GDP was 2.7% higher than its pre-crisis peak by the end of the second quarter this year.

However, the ONS also revised its estimate of growth in the first quarter of the year down to 0.7% from an earlier estimate of 0.8%.

Business investment

Growth in the second quarter of the year was boosted by a 1.1% rise in output from the services industry.

The contribution from construction was revised up sharply to show 0.7% growth compared with a previous estimate of zero growth.

The Bank of England forecasts that the UK's economy will grow by 3.5% in 2014, and the ONS figures show the business confidence is continuing to strengthen.

Business investment grew 11% in the second quarter compared with the same period last year.

But despite economic growth, the current account deficit - a measure of how much a country's imports exceed the value of its exports - widened from 4.7% of GDP in the first quarter of 2014 to 5.2% in the second quarter.

David Kern, chief economist at the British Chambers of Commerce (BCC), said the deficit was at "a level which in the long-term will prove to be unsustainable".

And under the ONS's new methodology, public sector debt as a percentage of GDP, excluding banks, now stands at 79.1% compared with 76.5% using the old system.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "While a smaller than previously reported recession in 2008-09 and better than previously reported GDP growth since then is welcome news, it does not hugely change the growth outlook - especially as there have been no major revisions to the economy's performance in 2013 and the first half of 2014.

"What it does imply though is that the UK's recent productivity performance has not been as bad as thought and that the economy has greater capacity to grow without generating inflationary pressures."

Analysis: Anthony Reuben, BBC Head of Statistics

There have been big changes to the way UK economic growth is measured since we had our last update from the ONS.

In addition to the headline-grabbing stuff about including the proceeds of illegal drugs and prostitution - estimated to add £10bn a year to the UK economy - we've also had changes to the treatment of weapons, research and development spending and services provided by non-profit institutions such as charities.

These changes have added billions of pounds to the total amount produced by the economy. But because there have been revisions to the measures going back to the 1970s, the amount of growth from quarter to quarter has not changed a great deal.

We've seen changes of 0.1 percentage points here and there, which is well within the margin of error for these figures.

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