Right, how can it not with a 12% type deficit?

U.K. Economy Grows Most Since 2001 on Construction

By Scott Hamilton

Aug. 27 (Bloomberg) — The U.K. economy expanded faster
than previously estimated in the second quarter in the biggest
growth spurt since 2001 as companies rebuilt stocks and
construction work surged.
Gross domestic product rose 1.2 percent from the previous
three months, the Office for National Statistics said today in
London. That was higher than the 1.1 percent initial estimate,
which was the median forecast of 25 economists in a Bloomberg
News survey. On the year, the economy expanded 1.7 percent.
Britain’s growth pickup may deepen the divide among policy
makers as the Bank of England considers whether the economy
faces a greater threat from inflation or needs more stimulus to
avert a further recession. The pound declined after the report,
which showed slower services growth than previously estimated
and a drop in fixed investment.
“The third quarter looks like it’s started pretty well,”
James Knightley, an economist at ING Financial Markets, said in
a telephone interview. “Momentum can be continued into the next
few months,” though “we should be looking at growth being
subdued over the coming years and that could raise the prospect
of further stimulus rather than a withdrawal.”
The pound fell more than 0.2 percent against the dollar
after the data were published. The currency traded at $1.5504 as
of 9:47 a.m. in London. The yield on the benchmark two-year
government bond was down 2 basis points today at 0.618 percent.

Budget Squeeze

The U.K. faces the biggest budget squeeze since World War
II, which has undermined consumer confidence. Ed Balls, a
candidate for the leadership of the U.K.’s opposition Labour
Party, said today that the government’s plans to cut the budget
deficit immediately risk pushing Britain back into recession.
At the same time, a debt crisis threatens the recovery in
the euro region, the U.K.’s largest trading partner, and there
are signs the global recovery is cooling.
The U.S. economy probably grew at a 1.4 percent annualized
pace in the second quarter, slower than the 2.4 percent rate
projected last month, according to the median forecast of 81
economists surveyed by Bloomberg. That would be the slowest
growth since the second quarter of 2009 when the economy was
still contracting. That data will be released later today.

Construction Surge

The U.K. GDP figure was revised up after construction
expanded faster than previously estimated, rising 8.5 percent on
the quarter, the most since 1982. Inventories rose by 983
million pounds ($1.5 billion) in the first evidence of stock-
building by companies for seven quarters, the statistics
office’s report showed.
Consumer spending rose 0.7 percent and government
expenditure increased by 0.3 percent, the statistics office
said. That offset a 2.4 percent drop in fixed investment.
Growth in services, which account for about three quarters
of the economy, was revised down to 0.7 percent from 0.9
percent, the statistics office said. Faster expansion in
business services was outweighed by a drop in air transport
during a quarter when European airspace was disrupted by an ash
cloud caused by volcanic activity in Iceland.
The “breakdown of GDP shows that the recovery is built on
very fragile foundations,” said Samuel Tombs, an economist at
Capital Economics Ltd. in London. “Household and government
spending did both post solid rises, but both sectors are very
unlikely to maintain such growth rates as the fiscal squeeze
kicks in over the coming quarters.”
In a separate report, the statistics office said that
business investment fell by 1.6 percent from the previous
quarter. On the year, it increased by 1.9 percent.

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