By Matt Falloon and David Milliken
LONDON, Sept 28 (Reuters) - Britain's economy grew at its fastest pace in nine years in the second quarter of 2010 and growth in the first three months of the year was revised slightly higher, official data showed on Tuesday.
Analysts, however, said the pace of growth is likely to fall sharply given that it has relied heavily on a drop in household saving and a big rise in government spending.
The Office for National Statistics said gross domestic product grew 1.2 percent in the three months to June, confirming an estimate published last month and in line with economists' forecasts.
The annual rate of growth was also unrevised at 1.7 percent for the second quarter, as expected. But the office raised growth in the first three months of the year to 0.4 percent from the previous estimate of 0.3 percent.
Sterling rose against the dollar and euro after ONS data also showed Britain's current account deficit narrowed more than expected in the second quarter.
Britain's economy has bounced back strongly from its deepest recession since World War Two but most economists expect growth to slow sharply due to impending government spending cuts and weak overseas demand.
'The prospects for growth don't look particularly stunning at this stage,' said Peter Dixon, an economist at Commerzbank.
'It's hard to see how households can do anything but retrench next year.'
As such, the Bank of England is expected to keep monetary policy extremely accommodative well into next year.
Construction output surged 9.5 percent during the second quarter, its fastest rate of expansion since 1963 as it caught up after winter disruption.
Industrial production grew an unrevised 1.0 percent on the quarter and growth in services output was revised down slightly to 0.6 percent from 0.7 percent.
SAVING SLIDES
Bank of England deputy governor Charles Bean said in an interview on Monday evening that the whole point of the bank keeping policy ultra-loose was to encourage consumers and businesses to spend in the short-term, rather than save.
The household savings ratio fell to 3.2 percent in the second quarter from 5.5 percent in the first three months of the year, its lowest since Q3 2008.
'It tells me that in the year ahead we're likely to see consumption growth come under pressure,' said Brian Hilliard, an economist at Societe Generale.
'It's telling us, not that growth is an illusion, but that it's being supported by consumption, which is going to be challenged in the coming quarters.'
Government spending grew by 1.0 percent on the quarter, its fastest rate since Q4 2008. However, growth will suffer over the next few years from the Conservative-Liberal Democrat coalition's plans to cut a record budget deficit that hit 11 percent of GDP in the 12 months to April.
The second-quarter current account data showed that Britain's deficit with the rest of the world narrowed to 7.383 billion pounds from an upwardly revised 11.298 billion pounds in the first quarter.
That was better than expected and reduces Britain's current account deficit to 2.0 percent of GDP from 3.1 percent in the first quarter.
(Editing by Patrick Graham) (uk.economics@reuters.com; +44 20 7542 5109) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, Sept 28 (Reuters) - Britain's economy grew at its fastest pace in nine years in the second quarter of 2010 and growth in the first three months of the year was revised slightly higher, official data showed on Tuesday.
Analysts, however, said the pace of growth is likely to fall sharply given that it has relied heavily on a drop in household saving and a big rise in government spending.
The Office for National Statistics said gross domestic product grew 1.2 percent in the three months to June, confirming an estimate published last month and in line with economists' forecasts.
The annual rate of growth was also unrevised at 1.7 percent for the second quarter, as expected. But the office raised growth in the first three months of the year to 0.4 percent from the previous estimate of 0.3 percent.
Sterling rose against the dollar and euro after ONS data also showed Britain's current account deficit narrowed more than expected in the second quarter.
Britain's economy has bounced back strongly from its deepest recession since World War Two but most economists expect growth to slow sharply due to impending government spending cuts and weak overseas demand.
'The prospects for growth don't look particularly stunning at this stage,' said Peter Dixon, an economist at Commerzbank.
'It's hard to see how households can do anything but retrench next year.'
As such, the Bank of England is expected to keep monetary policy extremely accommodative well into next year.
Construction output surged 9.5 percent during the second quarter, its fastest rate of expansion since 1963 as it caught up after winter disruption.
Industrial production grew an unrevised 1.0 percent on the quarter and growth in services output was revised down slightly to 0.6 percent from 0.7 percent.
SAVING SLIDES
Bank of England deputy governor Charles Bean said in an interview on Monday evening that the whole point of the bank keeping policy ultra-loose was to encourage consumers and businesses to spend in the short-term, rather than save.
The household savings ratio fell to 3.2 percent in the second quarter from 5.5 percent in the first three months of the year, its lowest since Q3 2008.
'It tells me that in the year ahead we're likely to see consumption growth come under pressure,' said Brian Hilliard, an economist at Societe Generale.
'It's telling us, not that growth is an illusion, but that it's being supported by consumption, which is going to be challenged in the coming quarters.'
Government spending grew by 1.0 percent on the quarter, its fastest rate since Q4 2008. However, growth will suffer over the next few years from the Conservative-Liberal Democrat coalition's plans to cut a record budget deficit that hit 11 percent of GDP in the 12 months to April.
The second-quarter current account data showed that Britain's deficit with the rest of the world narrowed to 7.383 billion pounds from an upwardly revised 11.298 billion pounds in the first quarter.
That was better than expected and reduces Britain's current account deficit to 2.0 percent of GDP from 3.1 percent in the first quarter.
(Editing by Patrick Graham) (uk.economics@reuters.com; +44 20 7542 5109) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.