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Preliminary Q2 GDP figures rocket

Preliminary estimates of Q2 2010 UK GDP figures by the Office of National Statistics predict that the economy grew by 1.1 per cent.

UK GDP rose by 0.3 per cent in Q1 2010 but the Government says a strong recovery in the second quarter of the year, fuelled in part by increases in financial, business and construction services means GDP may have increased by as much as 1.1 per cent in the second quarter of the year.

A 1.1 per cent  quarter on quarter increase would be the biggest UK GDP leap since Q1 2006. This is also a 1.6 per cent increase year on year, which would be the largest annual bounce since Q1 2008.

Schroders European economist Azad Zangana says: “Wow!! Preliminary estimates of GDP growth for between April and June 2010 showed the economy grew by a huge 1.1 per cent, which is a tremendous rebound.

“The City had expected an improvement of 0.6 per cent growth, but the latest estimates are a very positive surprise which should provide a boost to consumer confidence heading into the second half of the year.”

But Zangana warns that this bounce will not be repeated in the second half of 2010 but thinks the UK has done enough to avoid a double dip. Both Zangana and Barclays Capital analyst Simon Hayes say these strong results should mean the Monetary Policy Committee shelve any future quantitative easing plans.

Hayes says: “The minutes of the July MPC meeting raised the prospect of more QE, a move that would provide something of a communication challenge for the Bank given persistently high inflation outturns. The strong growth registered in Q2 suggests that further policy loosening may be unnecessary – and may help to swing the debate in favour of those arguing that the economy is sufficiently robust to withstand some modest policy tightening.”

CreditSights analyst David Watts says: “We now think a nominal monetary policy tightening will probably be forthcoming in the coming months.”

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