UK Q2 GDP growth revised down to quarterly 0.7 pct from 0.8 pct

The UK economy grew by less than first estimated in the second quarter of the year because fewer people went to hospital and the gambling revenues generated during the World Cup were lower than anticipated, official figures showed today. In its second and final revision of second quarter GDP figures, the office for National Statistics said the economy grew by 0.7 pct from the previous quarter, down on the 0.8 pct previously estimated. Analysts had not expected any change. A spokesman for the statistics office said new Department of Health data showed fewer people were hospitalised during the quarter, meaning that hospital output was lower. In addition, he said new data showed gambling during the World Cup to be lower than estimated. On a year-on-year basis, the statistics office confirmed that economic growth was 2.6 pct, up on the previous quarter's 2.3 pct, but in line with expectations of no change to the previous estimate. The latest year-on-year rate was the highest since the fourth quarter of 2004 when it also rose 2.6 pct. The second quarter was the the third in a row that the economy has grown by a quarterly 0.7 pct. The so-called trend rate of growth is estimated by most commentators to be between 0.6-0.7 pct. Because of concerns about the amount of spare capacity in the economy, today's data may do little to alter expectations that the Bank of England will raise borrowing costs again in November. The central bank's governor Mervyn King said recently that it was the news at the end of July that the economy grew at above its so-called trend rate in the second quarter that prompted the rate-setting Monetary Policy Committee to raise borrowing costs for the first time in two years. The quarter point rate hike last month took the key repo rate up to 4.75 pct. A more detailed look at today's data showed that the services sector, which accounts for around 74 pct of the UK economy, rose by less than previously estimated. Instead of the 1.0 pct quarterly growth previously recorded, the sector saw output expand by 0.9 pct. In the ffirst quarter, the services sector saw output rise by 0.7 pct. On a year-on-year basis, the services sector saw output rise by 3.7 pct. The downward revision in the quarterly rate was due to lower output in the government and other services sector. Instead of the quarterly 0.8 pct forecast previously, the sector only rose by 0.4 pct because of lower health and gambling output. In the second quarter, government and other services saw output rise by a quarterly 0.6 pct. Elsewhere within the services sector, the statistics office said business services and finance saw output in the quarter rise by 1.4 pct, up from 0.9 pct in the previous sector, while transport storage and communications grew by 0.5 pct, up on the previous quarter's 0.2 pct. Partly offsetting the services decline was an upward revision in industrial production, which accounts for around 19 pct of the UK's GDP. It saw output unchanged during the quarter, against the previous prediction of a 0.2 pct decline. However, it was down on the first quarter's 0.8 pct. The main reason behind the better than predicted performance was a 0.7 pct rise in manufacturing, particuarly chemicals and man-made fibres and machinery & equipment industries. On a year-on-year basis, industrial production was 0.7 pct lower. The construction sector, which makes up around 6 pct of UK GDP saw output rise by an unrevised 0.5 pct over the quarter. Over the year, it is down 0.1 pct following a very weak third quarter in 2005. On the expenditure side of the accounts, the statistics office said household expenditure rose by a two-year high of 0.9 pct during the quarter, up on the 0.3 pct increase in the previous quarter, but down on the previous estimate of 1.0 pct. On a year-on-year basis, household expenditure was 2.3 pct higher on the same quarter in 2005, down on the initial estimate of 2.4 pct. The statistics office said there were strong contributions to quarterly growth from recreation & culture, household goods & services, clothing & footwear but slight falls in food & drink, transport and restaurants & hotels. Meanwhile, government expenditure rose by 0.8 pct in the latest quarter, down on the initial estimate of 1.0 pct, for a 2.1 pct annual gain. The statistics office said strong growth in military defence and central government was offset by falls in local government and health expenditure. Elsewhere, the statistics office said gross fixed capital formation, a broad measure of business investment, rose by 0.6 pct during the quarter, down on the previous estimate of 0.9 pct and the first quarter's 2.0 pct. On an annual basis, it is up 4.8 pct. Finally, the statistics office said net trade contributed 0.2 pct percentage points to GDP, up on the previous estimate of a 0.1 pct decline, largely because the deficit narrowed during the quarter. The statistics office the annual GDP deflator, a broad measure of inflation, was 2.2 pct above the same quarter last year, revised down from the 3.4 pct previously published.