Better Q3 growth in UK masks risks of recession
Published 23/12/2011 | 05:00
The economy in Ireland's largest trading partner, the UK, unexpectedly grew faster than first thought between July and September, official figures showed.
But they also revealed that growth was on shaky foundations and analysts said the economy could be about to slide into recession.
The Office for National Statistics revised up third-quarter GDP growth to 0.6pc on the quarter from an earlier estimate of 0.5pc, but it revised down its second-quarter estimate to show the economy stagnated between April and June.
Analysts said yesterday's figures did not change their view that the economy was set for a sharp slowdown due to the deepening eurozone crisis, which threatens to wreak havoc in Britain's biggest export market.
"Our expectation is that the UK is about to undergo a short recession," said Philip Shaw, economist at Investec. "It's pretty clear that 2012 is going to be a challenging year."
Last month, Chancellor George Osborne had to announce extra austerity measures after the independent Office for Budget Responsibility slashed its 2012 growth forecast by more than half to just 0.7pc.
The upward Q3 revision was driven by firms building up stocks rather than selling to consumers at home or abroad.
Output by the services and construction sectors was revised up, but industrial output was cut in half. Growth was further undermined by a record trade deficit, which subtracted 0.4pc from GDP. A sharply deteriorating growth outlook and worries that the eurozone debt crisis will tip Britain back into recession encouraged the Bank of England (BoE) to restart its quantitative easing programme in October.
The central bank has left the door open for further stimulus in February, and most economists reckon it will inject as much as £75bn (€90bn) on top of £75bn it added in October.
"It remains odds-on that the BoE will undertake further QE early in 2012 to try and boost the struggling economy," said Howard Archer, economist at IHS Global Insight.
Policymakers had been counting on a weak pound helping Britain to export its way to recovery, but crumbling confidence in the eurozone has hit demand for British goods.
Household spending was flat on the quarter. (Reuters)