Today’s upward revision to UK GDP growth in the second quarter from 0.6% to 0.7% had been suggested by earlier construction and industrial data – see previous post. Unrounded, the increase is now 0.72% rather than 0.62%, with a marginal upgrade to services growth also contributing.

Adjusting for distortions from North Sea oil and gas production, additional bank holidays and the Olympics, growth last quarter was the strongest since the second quarter of 2011 – see chart.

Contrary to popular assertion, the growth pick-up is “balanced”: consumer spending rose by a modest 0.4% last quarter but investment increased by 1.7% while net exports contributed 0.38 percentage points to the GDP rise.

Consumption expansion, moreover, was based on increased income rather than borrowing, which remains historically subdued. Employee compensation jumped by 2.4% in the second quarter, or an inflation-adjusted 1.9%, reflecting a shifting of bonus payments to take advantage of the cut in the top rate of income tax from April. This suggests that the decline in the household saving ratio in the first quarter, to 4.2% from 5.9% in the fourth quarter, reversed last quarter – an official figure will be released next month.

Today’s upward revision should contribute to a further rise in the consensus GDP growth forecast for 2013 – still only 1.1%, according to the Treasury’s August survey. Posts since late 2012 have suggested that the economy will expand by about 2% this year. This is still a reasonable expectation for non-oil GDP, incorporating likely further upward revisions and solid second-half expansion. Headline growth, however, may be held back by further weakness in North Sea production during the second half: the industry now expects a full-year output fall of between 9% and 22%, implying a GDP drag of 0.2-0.4 percentage points.