Britain's economy expanded 2.3 percent last year, the fastest pace since 2000 and more than the government previously estimated, as exports of services and household spending surged. Gross domestic product growth in 2003 was revised from 2.1 percent, the statistics office in London said. In the fourth quarter, GDP rose an unrevised 0.9 percent from the prior three months and 2.8 percent from a year earlier, revised up from the preliminary estimate of 2.5 percent. Economists had forecast no revisions.
The new 2003 GDP figure exceeds Chancellor of the Exchequer Gordon Brown's forecast of 2.1 percent. Consumer spending has fueled U.K. growth while the euro region expanded only 0.4 percent last year, the slowest pace in a decade. The Bank of England, which raised interest rates twice in the past four months, said surveys suggest Britain's expansion accelerated further in the first quarter. ``For a central bank that already believes there is little spare capacity within the economy, this news will simply add fuel to the flames,'' said John Butler, a former Bank of England economist now at HSBC Holdings Plc, who predicts rates will rise again in May. Futures trading suggests investors expect interest rates to rise by the middle of this year. The yield on the three-month futures contract maturing in June was 4.40 percent at 9:34 a.m. after the release. That compares with the current money-market rate of 4.19 percent.
Growth Outlook
U.K. bonds stayed lower after the GDP data were released. The central bank this month raised its growth forecasts to about 3.5 percent this year and 3 percent in 2005. That's above the ``trend'' rate the bank associates with stable inflation, estimated at 2.5 percent. In the euro region, the European Commission forecasts growth of 1.8 percent this year. Growth for all of last year was revised because of higher estimates of exports of communication and insurance services, and consumer spending on restaurants, hotels and housing. Services grew 2.5 percent in 2003. In the fourth quarter, household spending rose 1.1 percent and government spending gained 1.9 percent, the most since the third quarter of 2001. Service industries expanded 1 percent.
HBOS Plc, the U.K.'s biggest mortgage lender, today reported a 33 percent gain in second-half profit. Domino's Pizza U.K. & Ireland Plc, Britain's largest pizza-delivery chain, yesterday said profit surged 62 percent last year.
Outpacing Europe
Britain's growth is outpacing Europe's largest economy, Germany, which expanded 0.2 percent in the fourth quarter. The French economy, the third largest in the region, grew 0.5 percent. The U.S. economy, the world's largest, expanded at an annual pace of 4 percent. U.K. manufacturing production, a fifth of the economy, rose 0.2 percent in the fourth quarter. Industrial production, which also includes utilities and mining, declined 0.1 percent, and construction growth is estimated at 1.6 percent. Looking ahead, surveys suggest ``manufacturing is picking up quite sharply,'' said Adam Cole, an economist at Credit Agricole Indosuez in London. ``We should see a more balanced recovery.'' The central bank's Deputy Governor Rachel Lomax said last week rates are rising to more ``normal levels'' and that this was ``good news'' because it reflected an improving economy. Kate Barker, another member of the rate-setting committee, said Monday Britain's economic prospects are the best since 1995.
Strong Momentum
``The economy is strong and there's momentum there that means the strength is going to persist for some time,'' said Butler at HSBC Holdings. All but two of 26 economists surveyed by Bloomberg last Friday predicted another increase in borrowing costs in May, when the bank publishes its latest growth and inflation forecasts. Analysts were unanimous in predicting the bank won't move rates next month. They expect rates at 4.5 percent by yearend. One factor that may support a gradual approach by the Bank of England in raising rates is the strengthening pound, which may damp inflation by lowering the cost of imports, though it may also curtail exports. Against the dollar, the pound reached an 11-year high of $1.9140 last Wednesday. //www.bloomberg.com