Business

UK economic growth confirmed at 0.5% by official data

Mini production line in Oxford
Image caption An increase in firms' inventories was the main reason for the 0.5% growth in the third quarter

UK economic growth between July and September was left unchanged in the latest figures from the Office for National Statistics.

Growth in gross domestic product was confirmed at 0.5%, compared with a 0.1% expansion in the second quarter.

The second quarter was especially weak because activity was interrupted by the extra holiday for the royal wedding.

Growth in the third quarter was largely driven by an increase in firms' inventories.

A Treasury spokesman said the UK economy was "not immune to the turbulence in the eurozone and its impact on British businesses".

The Bank of England has forecast that the economy will stagnate in the next three months of this year, and is likely to grow at between 0.7-0.8% next year.

The ONS said inventory growth - stock building - added 0.7% to GDP in the third quarter.

Government spending also rose, by 0.9%, but that is likely to fall as the government's spending cuts feed through.

Household consumption was flat, but this ended five quarters of declines, with consumers spending more on housing, transport and recreation and culture.

On the other hand, production growth was revised down from 0.5% to 0.4% and services output was cut from 0.7% to 0.6%.

'Stagnate'

Brian Hilliard, of Societe Generale, said the figures contained some good news: "The thing that stands out is that consumption has stopped falling after two very large declines in Q1 and Q2. It was actually flat in Q3.

"It's impressive given that inflation was rising during that period very strongly."

Vicky Redwood, chief UK economist at Capital Economics, said that without the rise in firms' inventories, the economy would have shrunk in the quarter.

She said: "Looking ahead, the activity surveys suggest that the economy has already relapsed, with GDP on course to stagnate or even contract a bit in the fourth quarter.

"We still expect the economy at best to stagnate next year."

Other figures showed the net trade deficit, the difference between the country's imports and exports, grew to £5.5bn from £4.1bn the previous quarter.

The latest survey from the business organisation, the CBI, backed up the picture of falling output and exports.

Its monthly Industrial Trends survey showed the majority of firms polled found orders had weakened in November, with export orders particularly hit.

Of the 446 manufacturers who responded, 11% reported export order books above normal, while 42% said they were below.

The resulting survey balance (-31%) is the lowest since January 2010.

As a result, says the CBI, firms expect a fall in production over the coming quarter.

Ian McCafferty, the CBI's chief economic adviser, said: "Developments in the eurozone, and their impact on prospects for our major trading partners, are clearly hitting the UK manufacturing sector.

"It is very possible that factories will see production slowing further in the near term."

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