George Osborne enjoys Budget boost as economy gets its spring back
Britain’s economy has bounced back from a pre-election lull in a boost to George Osborne ahead of next week’s Budget – the first by a fully Conservative government for nearly 20 years.
Research group Markit estimated gross domestic product – total output in the UK – rose by 0.5 per cent in the second quarter of the year following growth of 0.4 per cent in the first.
But experts warned the recovery is ‘increasingly unbalanced’ as services firms prosper and manufacturers struggle – creating a ‘two-speed economy’. Business leaders also voiced concerns over Greece – cautioning that a ‘messy divorce’ from the eurozone would rattle markets across Europe. European stock markets suffered another day of selling yesterday with the FTSE 100 index down 44.69 to 6585.78.
The Chancellor has said Britain must ‘prepare for the worst’ in Greece and will use Wednesday’s Budget to pledge to do whatever it takes to shield the UK from the crisis.
He will be buoyed by signs the economy is picking up pace following a slowdown earlier in the year as he outlines plans to eliminate Britain’s still huge deficit (see graph).
Markit said its index of activity in the services sector – where scores above 50 show growth – rose from 56.5 in May to 58.5 in June. That was far stronger than the 51.4 score recorded by manufacturers earlier in the week and put the UK on course for growth of 0.5pc in the second quarter.
‘The pace of economic growth rebounded in June, recovering from what appears to have been a brief lull caused by the General Election,’ said Chris Williamson, chief economist at Markit.
But he warned that ‘an escalating Greek crisis and Grexit has the potential to destabilise economic growth’ and added: ‘Growth is looking increasingly unbalanced.’
A survey of board members in Britain by the Institute of Directors found 73 per cent believe a Greek exit from the euro is ‘likely’ in the next 12 months with 48 per cent fearing a negative impact on the UK economy.
Separate figures from Markit suggested the eurozone has so far weathered the storm in Greece with the help of the European Central Bank’s emergency money printing programme. Its index of business activity across the single currency bloc rose from 53.6 in May to a four-year high of 54.2 in June.