UK economy grows 0.8% in Q3

The UK economy grew 0.8% between July and September, figures from the Office of National Statistics reveal.

The volume of output in the production industries rose by 0.6%, within which manufacturing rose by 1.0%.

Output of the service industries increased by 0.6%, with construction output increasing by 4.0%.

Household expenditure has increased by 0.3% compared with the previous quarter, while gross fixed capital formation rose by 0.6%.

Vicky Redwood, senior UK economist at Capital Economics, says the figures confirm the economic recovery was still going strong in the third quarter. But she says it still has deep concerns about its sustainability in the face of the immense fiscal squeeze.

Redwood says: “Quarterly GDP growth was left unrevised at 0.8%, while the annual growth rate stayed at 2.8%. The ONS does not make any revisions to previous quarters in this release, but recent downward revisions to construction output suggest that next month’s National Accounts will show that GDP growth in the first half of the year was not quite as strong as currently estimated.”

She says overall investment rose by 0.6%, but business investment fell by 0.2%.

Redwood adds: “In other words, the rise in investment was driven by the public sector and house-building – neither of which looks likely to continue with the fiscal squeeze starting and the housing market relapsing.

“Meanwhile, despite a near 1% rise in retail sales in Q3, consumer spending rose by only 0.3%, suggesting that spending off the high street is falling again. And of course, given the troubles in Europe, it would be unwise to rely on a continued strong boost from net trade.

“Indeed, the business surveys have continued to suggest that GDP growth has slowed sharply in the final quarter of the year. We still expect GDP growth of just 1% in 2011.”