Britain's Economic Growth Is The Envy Of Its Neighbors

The U.K. now has one of the fastest-growing economies in the developed world.

With growth expanding at a 3 percent annual rate as a strong housing market and manufacturing lead the way, the country's economy is the envy of Continental cousins like Spain, which mustered just 0.1 percent growth, and it tops Germany’s annual estimated 1.4 percent advance in last year.

“The impact of the Great Recession is still being felt, but the foundations for a broad-based recovery are now in place,” Britain’s Chancellor of the Exchequer said on Tuesday.

The 3 percent growth may pale in comparison to emerging market economies growing at 6 and 7 percent and “the level of real GDP is still around 0.6 percent below its pre-crisis peak.” But it's the strongest growth since 2007's 3.4 percent.

And in a resoundingly moderate appraisal of the latest news, economist Jeremy Cook at World First told the BBC on Tuesday that its was, ”solid but not spectacular."

Britain is posting the best growth of any of the Group of Seven nations, and that’s increasing the likelihood of a Bank of England (BOE) rate hike sooner rather than later. But with unemployment at 6.9 percent in the first quarter, others are counting on steady rates for some time.

“Overall, the U.K. economy appears to be enjoying a 'Goldilocks' scenario of solid, but not excessive, growth which should allow both inflation and interest rates to remain at low levels for some time yet,” Capital Economics analysts told clients in a note on Tuesday.

Rising wages are also helping boost demand and that in turn is restarting some of the excess manufacturing capacity the financial crisis created.

“Strong growth such as that currently being experienced would normally trigger higher interest rates to ward off future inflation, but policymakers believe that large amounts of spare capacity mean that stronger than usual growth can be tolerated without resulting in higher prices, at least until much of this spare capacity gets used up,” the Markit Economics’ team wrote.

The U.K. housing market is also improving, countering concerns among some observers that a bubble’s forming.

“It can be hard to identify a housing bubble in real time. However, classic signs at previous U.K. housing peaks have been a high level of turnover, rapid credit growth and loose lending standards, and these signs do not seem to be present yet,” Citigroup Inc. (NYSE:C) analyst Michael Saunders wrote in a note.

That improving housing market is also driving the wealth effect, with Citi’s Saunders suggesting that gains in housing have driven the ratio of net household wealth to income to a new high, “finally exceeding the pre-crisis peak.”

“The pace of expansion is all the more remarkable for having occurred despite extreme weather, including flooding, which affected many parts of the country,” Markit Economics analysts said on Monday.

Manufacturing, which took a big hit during the financial crisis was the star of Monday’s report and is punching above its weight in Britain where it makes up just 10 percent of the overall economy. That sector grew 1.3 percent during the first quarter.