Prospects for the UK Economy

During 2006, output in the UK economy grew by 2.8 per cent and the robust pace of economic growth has continued in the first half of this year. After a first estimate of quarterly GDP growth of 0.7 per cent into the first quarter of this year, the official preliminary estimate suggests that the economy expanded by 0.8 per cent into the second quarter. The economy continues to be driven by business services and finance, although the production sector actually reported quarterly growth for the first time since the first quarter of 2006. The economy is now operating around full capacity, and has recovered from the weakness that was apparent in 2005. We have revised up our forecast for this year to 2.8 per cent per annum, from 2.7 per cent per annum in our April forecast. This is due to an upward revision to estimates of GDP growth at the end of 2006 and more robust growth than we had anticipated in the first half of this year. We expect growth of just below the trend rate for the remainder of the forecast period as domestic demand growth moderates.