Economy grows by 0.6% in second quarter of 2013

The Office for National Statistics figures showed all the main sectors of the economy grew for the first time since the third quarter of 2010, adding to hopes for a recovery.

Prime Minister David Cameron said the figures were "encouraging" and showed the UK was on the "right track".

He wrote on Twitter: "Today's economic growth figures are encouraging. We are on the right track - building an economy for hardworking people."

Chancellor George Osborne tweeted: "GDP stats better than forecast. Britain's holding its nerve, we're sticking to our plan, the economy's on the mend. But still a long way to go."

The overall 0.6% growth figure for the UK economy in the second quarter was in line with expectations.

Vicky Redwood, of Capital Economics, said: "Of course, we shouldn't get too carried away. Even a 0.6% quarterly rise is fairly mediocre after such a deep recession and GDP is still 3.3% below its peak.

"And with households' real pay still falling, bank lending flat and public sector austerity measures building, the economy may struggle to maintain its recent rate of growth in the second half of this year.

"Nonetheless, evidence is building that the economy is gradually getting back on its feet."

The powerhouse services sector, which represents three-quarters of the economy, represented the bulk of the increase, as it expanded by 0.6%.

Within this area, business services and finance rose 0.5% after slipping back in the first quarter - with architectural and engineering activities making the strongest contribution.

Hotels, restaurants and distribution also contributed to the services improvement, growing 1.5%.

Gains in the beleaguered construction and manufacturing sectors, still well below their 2008 peaks, will be especially welcome.

Construction, boosted by Government initiatives to stimulate home buying, rose 0.9% after falling 1.8% in the previous quarter.

Manufacturing also saw a turnaround in fortunes, picking up 0.4% after a 0.2% fall last time. It contributed to an overall increase in the production sector of 0.6%.

But production remains 13.4% off its 2008 peak, with construction still 16.5% down. Overall GDP was 3.3% below the peak.

The GDP rise was the best performance, excluding special events, since the third quarter of 2011. A 0.7% rise in the third quarter of last year is attributed to a bounce-back from a Jubilee slump in output.

Today's figures will banish the chilly mood of three months ago when it was feared that the UK may have suffered an unprecedented triple-dip recession.

They should build on national cheer fuelled by the birth of the royal baby and the summer heatwave.

Prospects of the UK entering the sunlit uplands of recovery have risen steadily since the previous GDP data in April this year, when the 0.3% increase in the first quarter was announced - though some warn that underlying weakness remains.

Chris Williamson, chief economist at Markit, said: "Prospects look good for a continuation of the recovery in the third quarter, with consumers and businesses both helping drive the upturn.

"There are even signs that exporters will see improved sales, helping drive the long-awaited re-balancing of the economy."

But he suggested the buoyant picture could put pressure on the Bank of England to consider tapering off the historically low interest rates and £375 billion quantitative easing programme that have nursed the economy through its worst period.

"It is becoming increasingly unlikely that a prolonged, two-to-three-year, period of record-low interest rates can be justified if this really does mark the start of a sustainable, robust upturn, especially if inflation remains stubbornly high."

Howard Archer, chief UK economist at IHS Global Insight, said: "It is important that manufacturing and construction grow as well if the recovery is to develop and become broadly based."

But he predicted that third quarter growth was unlikely to sustain the same rate.

Neil Bentley, deputy director-general of the CBI, said the latest data "confirms our view that we are heading down the road to recovery, even if there are likely to still be a few bumps ahead".

He added: "Underlying conditions are quite weak as consumers are still saddled with debt and despite the global economy picking up, the potential for getting knocked off course remains.

"It's critical the Government renews its efforts to secure a balanced recovery, using investment and trade as its building blocks."

TUC general secretary Frances O'Grady said: "After years of bumping along the bottom, it's encouraging to finally see some growth in the economy.

"But it's a measure of how poor the economy is faring that this level of growth is being welcomed. We remain stuck in the slowest recovery for a century. The bigger picture is an economy that has grown half as much as forecast when the Government came to power."

Shadow chancellor Ed Balls said: "After three wasted and damaging years of flat-lining, this economic growth is both welcome and long overdue. But families on middle and low incomes are still not seeing any recovery in their living standards.

"While millionaires have been given a huge tax cut, for everyone else life is getting harder, with prices still rising much faster than wages.

"This is also the slowest recovery for over 100 years. In America, where President Obama has acted to support rather than strangle the recovery, their economy has grown nearly three times faster than the UK since autumn 2010.

"Simply to catch up all the ground we have lost under David Cameron and George Osborne we would need growth of 1.3% each quarter over the next two years."

Graeme Leach, chief economist at the Institute of Directors, said: "The GDP figures are encouraging and will help to further build business and consumer confidence. For the first time since the financial crisis, the economy looks and feels as if there is a tailwind behind it.

"We are optimistic that the current rate of quarterly growth can be maintained through the second half of 2013 and into 2014.

"Indeed, if one looks to the current broad money supply - the amount of cash and bank deposits - as a leading indicator of economic activity, quarterly growth might actually accelerate slightly over the next six months."

Lee Hopley, chief economist at manufacturers' organisation EEF, said: "This is good news for the economy with positive data from almost all parts of the economy. This has been something of a rarity in recent years and the more even contributions from services, manufacturing and construction are particularly welcome.

"For manufacturing, this should signal the start of a gradual improvement in output and order books through the rest of this year.

"Indeed, better news on eurozone activity this week gives further cause for a bit of optimism for manufacturers and exporters but, importantly, we need to see output growth followed by a turnaround in business investment in the coming quarters.

"While we have some growth as last, the focus for policy-makers still needs to be on ensuring it's also sustainable."

Mr Osborne told Sky News: "The figures are better than forecast. Britain is holding its nerve. We are sticking to our economic plan.

"Britain is on the mend, but we've got to stick with the plan because there's still a long way to go."

Mr Osborne told BBC News: "One of the interesting things about the figures today is that they are quite broadly based.

"In other words, you see growth in construction, in manufacturing as well as services, and that gives us some reason for optimism about the future direction of the economy."

Mr Osborne spent the night before the GDP announcement visiting workers on night shifts in the Midlands.

The Chancellor met staff at Warburtons Bakery in Wednesbury, spoke with workers on a road management scheme on the M6 motorway near Birmingham and visited Tesco's National Distribution Centre near Rugby.