Official data confirm the UK economy grew by 0.8pc in the first quarter, though public borrowing data highlight challenge Chancellor still faces to balance books
Business investment is enjoying its longest period of sustained growth in 16 years, in further signs that Britain's economic recovery is broadening out.
The UK economy expanded at its fastest annual pace since 2007 in the first three months of the year, official data confirmed on Thursday, as a strong increase in business investment was supported by a rise in consumer spending.
The economy expanded by 0.8pc in the first quarter, according to the the Office for National Statistics (ONS) , unchanged from last month's preliminary estimate. This follows growth of 0.7pc in the final quarter of 2013.
On an annualised basis, the economy expanded by 3.1pc, representing the fastest rate of growth since the final quarter of 2007.
While growth was driven by a 0.8pc increase in consumer spending, which powers nearly two-thirds of the UK economy, the ONS said business investment, which accounts for around 8pc of GDP, grew by 2.7pc to £32.8bn in the first quarter compared with the previous quarter, adding 0.2 percentage points to UK gross domestic product (GDP).
Business investment has now grown for five consecutive quarters, representing the longest period of expansion since 1998. On an annual basis, business investment grew by 8.7pc.
Growth in services output was unrevised at 0.9pc on the quarter, while the manufacturing sector expanded by 1.4pc, up from an initial estimate of 1.3pc. A survey by the Confederation of Business Industry on Thursday indicated that manufacturers, which power around a tenth of the economy, are on course for another quarter of strong growth. Order books picked up slightly in the three months to May, the CBI said, while business optimism for the next three months remained close to a 15-year high.
Construction output grew by 0.6pc, according to the ONS, up from an initial estimate of 0.3pc.
Despite the slight upgrades, Britain's economy remained 0.6pc smaller than it was just before the financial crisis in the first quarter. However, the National Institute of Economic and Social Research (NIESR) has estimated that the economy may have passed it's pre-crisis peak in the first half of this month .
While the ONS said net trade made no impact on GDP, Thursday's growth figures suggest the recovery is becoming more sustainable.
"The rise in business investment is a major plus and helps give the impression that the recovery is broadening out somewhat," said David Tinsley, chief UK economist at BNP Paribas (Milan: BNP.MI - news) . "With business surveys having firmed in recent months, we believe that growth in GDP in Q2 can surpass than in Q1."
However, separate public borrowing data on Thursday highlighted the challenge the Government faces to eliminate the deficit and reduce Britain's huge debt pile as a proportion of GDP.
Official data showed the Government borrowed £11.5bn in April, excluding one-off payments related to Royal Mail (Other OTC: ROYMF - news) 's pension plan and QE gilt coupon transfers. This was £1.9bn higher than in April 2013, and much higher than the £8.4bn expected by analysts.
The public finances were hit by a 7pc fall in income tax receipts in April compared with the same month last year to £11.1bn, though the Office for Budget Responsibility (OBR) said on Thursday that the data were likely to be distorted by the tax shifting that people engaged in last year. Many people moved bonus payments into April 2013 instead of March in order to take advantage of the reduction in the top rate of tax to 45p, from 50p.
The OBR also said April's data did not provide a "meaningful guide to the trend in public sector net borrowing over 2014-15 as a whole" because of the volatile nature of central government spending and local authority borrowing figures at this early stage of the year.
The ONS data showed VAT receipts increased by 4.1pc, to £9.8bn in April, while the stamp duties on shares and properties increased by a third to £1.1bn.
Public sector net debt stood at £1.27 trillion in April, or 75.6pc of GDP, the ONS said.
The size of Britain's debt pile means interest on Government debt is expected to pass the £1bn-a-week milestone this year, according to the OBR.