Public spending growth is fastest since Wilson era

Government spending is rising at the fastest rate since Harold Wilson was Labour prime minister almost 30 years ago, figures showed yesterday.

Government spending is rising at the fastest rate since Harold Wilson was Labour prime minister almost 30 years ago, figures showed yesterday.

The surge in Whitehall expenditure, coupled with the strongest jump in consumer spending in nearly three years, put the economy on track for its best annual performance since 2000.

Day-to-day spending by government departments grew at an annual rate of 6 per cent in the second quarter of the year, the fastest rate of increase since the first three months of 1975.

Household spending almost doubled during the period, rising 1.1 per cent. Economists said the growth reflected the boost to consumer spending in May and June from Euro 2004 and increased the likelihood that interest rates would rise once more this year, to 5 per cent.

Malcolm Barr, a UK economist at JP Morgan Chase, said: "The data should serve as reminder that, housing aside, the MPC [Bank of England's Monetary Policy Committee] still has a little more to do."

Confirmation from the Office for National Statistics that economic activity grew 0.9 per cent between the first and second quarters of the year came as a separate survey suggested consumer confidence was waning.

GfK Martin Hamblin, the market research group, said its monthly barometer of British consumer sentiment tumbled to minus 5 in August from minus 3 in July, suggesting the Bank of England's attempts to cool the country's shopping boom were paying off. Five interest rate rises from the MPC conspired to drag consumer confidence to its lowest level since last December, as consumers grew increasingly pessimistic about the economy. More evidence on Thursday that the housing market is slowing will have further soured consumers' moods, economists said.

The ONS said the growth in the second quarter was spread across all sectors, fuelling hopes that the country is finally enjoying the balanced recovery forecast by the Government in the budget. On an annual basis, the economy grew by 3.7 per cent from April to June, in line with previous estimates.

Ross Walker, at Royal Bank of Scotland, predicted that the economy was on course to achieve economic growth of 3.4 per cent for 2004 - in line with the Chancellor's forecast.