UPDATE 1-Britain's economy picks up speed in second quarter, still below peak
By Olesya Dmitracova and William Schomberg
LONDON, July 25 (Reuters) - Britain's economy sped up between April and June on the back of stronger spending by consumers and businesses and giving a boost to the government less than two years before an election.
It came at the same time as a raft of UK company earnings reports showing growth picking up.
Gross domestic product rose 0.6 percent in the second quarter compared with the previous three months, in line with forecasts, preliminary data from the Office for National Statistics showed.
That was double the pace of growth in the first three months of the year but the economy still remains smaller than before the 2008-09 recession, suggesting to some economists that it still needs nurturing by the Bank of England.
The numbers were a boost for finance minister George Osborne, who has fended off calls from the International Monetary Fund and the opposition Labour party to spend more to speed up growth.
"Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend - but there is still a long way to go and I know things are still tough for families," Osborne said in a statement.
"So I will not let up in my determination to make sure we put right all that went wrong in our economy."
Growing signs of a pick-up in the British economy have coincided with a narrowing of Labour's lead over the Conservatives in some opinion polls.
The recovery also comes as other countries in Europe are struggling to show any growth at all.
Compared with a year earlier, Britain's economy expanded 1.4 percent, faster than 0.3 percent in the first quarter. It was the fastest increase since early 2011 although it was boosted by an extra working day in the April-June period this year.
Sterling weakened after the data and British government bond prices pared losses as some investors had been betting on stronger growth which would have reduced further the chance of the Bank of England pumping more money into the economy.
It was the first time that all sectors of the economy - agriculture, production, construction and services - grew since the third quarter of 2010.
The Bank of England's new governor, Mark Carney, may see the data as a sign that the economy is edging closer to what he has termed "escape velocity" or sustainable growth, though he is still likely to judge it needs extra help to get there.
From next month, Carney is widely expected to start providing detailed guidance on how long interest rates will remain low, in an effort to encourage consumers to spend and businesses to borrow and invest.
Britain's economy remains 3.3 percent smaller than in the first quarter of 2008 which was its peak before the financial crisis plunged the country into recession, tempering the good news about the growth in the second quarter.
"This confirms our view that we are heading down the road to recovery, even if there are likely to still be a few bumps ahead," said Neil Bentley, deputy director-general of British employers group CBI.
"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."
Thursday's data showed that output in Britain's service sector - which makes up 78 percent of GDP - rose by 0.6 percent in the second quarter after ticking up 0.5 percent in the first three months of the year.
Services provided the strongest contribution to overall growth, adding 0.5 percentage points, with the retail, hotels and restaurants and the business services and finance components accounting for the bulk of the increase.
Industrial output was 0.6 percent higher while construction - which now accounts for around 6 percent of GDP after shrinking sharply after the financial crisis - expanded by 0.9 percent.
Upbeat company news reinforced the sense of an economy on the mend. Telecoms operator BT, for example, posted first quarter profits comfortably ahead of forecasts driven in part by a good performance from the retail division.
Improving construction and housing markets helped two of the biggest trade suppliers, Travis Perkins and Howden Joinery post increased first-half profits.
Consumers, a key engine of Britain's economy, are perking up too. They are now more optimistic about the economy than at any point since April 2010, as measured by a new consumer confidence index by market researchers YouGov and the Centre for Economics and Business Research.
The ONS's preliminary estimates of GDP are among the first released in the European Union, and are based partly on estimated data. On average, they are revised by 0.1 percentage points up or down by the time a second revision is published two months later, but bigger moves are not uncommon.
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