George Osborne Hails 'Mending' British Economy as Recovery Picks Up Speed

UK Chancellor George Osborne claimed the economy is on the mend "but still has a long way to go" after GDP growth accelerated during the second quarter of 2013.

Britain's GDP expanded 0.6% in the three months to June, according to a preliminary estimate from the Office for National Statistics (ONS), as all four main industries in the economy - agriculture, production, construction, and services - reported rising output on the quarter before.

The data is a sign that the economy is finally on the path to a long-awaited recovery.

The GDP reading is in line with forecasts and is an increase on the first quarter's 0.3% growth.

Service firms, which represent three quarters of the UK economy, were the main upward thrust in the second quarter.

Labour's shadow chancellor Ed Balls hit out at the government, despite the rate of growth in the economy picking up.

"After three wasted and damaging years of flatlining, this economic growth is both welcome and long overdue. But families on middle and low incomes are still not seeing any recovery in their living standards," he said.

"While millionaires have been given a huge tax cut, for everyone else life is getting harder with prices still rising much faster than wages.

"This is also the slowest recovery for over 100 years. In America, where President Obama has acted to support rather than strangle the recovery, their economy has grown nearly three times faster than the UK since autumn 2010. Simply to catch up all the ground we have lost under David Cameron and George Osborne we would need growth of 1.3 per cent each quarter over the next two years."

Britain on the mend

A number of indicators suggested that the UK economy was picking up.

Private industry data compiled by Markit, from surveys of purchasing managers, showed service sector output jumping to its highest level in over two years during June.

Both the troubled manufacturing and construction sectors also grew their output in the second quarter.

"Surging growth in the service sector accompanied a resurgent manufacturing sector and modest growth in construction in June for an increasingly broad-based economic upturn," said Chris Williamson, chief economist at survey compilers Markit.

Deloitte's quarterly survey of chief financial officers showed a growing appetite for balance sheet risk, as big firms eye expansion.

Risk appetite among CFOs is now at the highest level in six years. They were also increasingly optimistic about the future.

The International Monetary Fund (IMF) raised its UK growth forecast for the first time in over a year. It predicts 0.9% GDP growth in 2013, up from the previous estimate of 0.6%.

As the economy gradually upticks, the Bank of England (BoE) has held off of more stimulus through its quantitative easing programme of gilt purchases.

So far, it has hoovered up £375bn of gilts from the markets, bringing UK sovereign debt yields down to record lows.

BoE Governor Mark Carney has, however, issued forward guidance on the path of the base rate. He told markets not to expect a hike any time soon from its record-low 0.5%.

Public debt has soared because GDP failed to meet expectations.

As the eurozone crisis burst open and powerhouse eastern economies, such as China, slowed down, it has forced the UK to borrow more than it had originally planned, just to maintain current spending.

Osborne said the UK's debt as a portion of GDP will keep rising until 2015/16 when it will peak at 85.6%. It already stands at a total of more than £1tn.