UK third quarter GDP surprises

| November 1, 2011
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The Office for National Statistics (ONS) has today revealed the UK economy expanded by a better-than-expected 0.5% in the July to September period.

This compares with a 0.1% growth rate for the second quarter and was better than the 0.3% expected by most economists.

The better performance was attributed to production sector output, which rose 0.5% in the three month period, versus a 1.2% decline in the previous quarter.

Meanwhile, business services and finance were the biggest contributor to overall growth in the period, expanding by 0.8%, the Office for National Statistics said.

However, the better than expected figures should not be regarded as an economic rebound since it compares with a second quarter which was hit by “special factors” such as the Royal Wedding and Japanese tsunami which trimmed as much as 0.5 percentage points from quarterly growth, analysts’ said.

Analysts also point out that the third quarter growth was still weak, at just 0.5%, and the outlook remains bleak.

Meanwhile, Chancellor of the Exchequer George Osborne described the figures as “a positive step” but added that the British economy still has a “difficult journey”.

In other news today, the Markit Purchasing Managers’ Index (PMI) revealed manufacturing activity contracted in October with the index falling to 47.4 in October from a reading of 50.8 the previous month.

The index is at the lowest level since June 2009 and suggests a weak start to the final quarter of 2011.

As a result, the latest PMI figures suggest the economy is still struggling and the Chancellor admitted that the euro zone debt crisis remains a concern.

Chris Williamson, chief economist at Markit, said there is a “significant risk” of the economy contracting in the fourth quarter and this follows similar observations made last week by Martin Weale and Paul Fisher, who are both members of the Bank of England’s Monetary Policy Committee.

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