UK economic growth accelerated in the third quarter as stockbuilding and government spending offset weak consumer spending and business investment.
Gross domestic product rose 0.5 per cent from the previous quarter, when it increased 0.1 per cent, the Office for National Statistics said on Thursday in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists. Consumer spending was flat on the quarter, while investment fell 0.2 per cent. Underlying growth “is weak,” the office said.
The Bank of England, which has restarted bond purchases to aid the recovery, said yesterday that underlying growth was probably weaker than the reported figure due to “heightened uncertainty” related to the euro-area crisis. The bank slashed its 2012 growth forecast by more than half and policy makers have signaled more stimulus may be needed in future.
“We don’t see any significant improvement or a change in conditions coming soon,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc (RBS) in London. “There will be a pickup in growth as 2012 progresses, but next year will feel very similar. But there’s no alternative. We’re in no position to engage in fiscal stimulus.”
From a year earlier, the economy grew 0.5 percent, the statistics office said.
The pound rose against the dollar and traded at $1.5564 as of 10:01 a.m. in London, up 0.2 percent on the day.
More From This Section
INVENTORIES
Government spending rose 0.9 percent from the previous three months, when it increased 1.1 percent. Inventories rose by 2.9 billion pounds ($4.5 billion), contributing 0.7 percentage points to growth, the most in a year. Stockbuilding was driven by manufacturing, as well as electricity, gas and water supply.
Exports declined 1 percent on the quarter, while imports rose 0.3 percent, according to on Thursday’s report. Net trade subtracted 0.4 percentage points from third-quarter growth.
The statistics office said the squeeze on household incomes and an uncertain labor market is weighing on confidence. Growth over the last year has been concentrated in “just a few components,” while there is evidence that households are taking steps to reduce their debts and increase savings, it said.
In a separate report, the office said business investment fell 1.4 percent in the third quarter.
BOE STIMULUS
The Bank of England increased the target for its bond purchases by 75 billion pounds to 275 billion pounds in October. While policy makers voted unanimously to maintain the target this month, some said more stimulus “might well become warranted in due course.”
Policy maker David Miles said yesterday that the “return to more normal rates of growth is something that is going to be a gradual process over the course of the next two years.”
The escalating crisis in the euro area, Britain’s biggest export market, may derail growth in the U.K. The Bank of England said yesterday that failure by euro-area nations to tackle the turmoil “could result in a much weaker external environment.”
Data in Germany on Thursday showed Europe’s largest economy grew 0.5 percent in the third quarter, boosted by consumer and company spending even as the debt crisis threatened to drag the euro area into recession.
STAGNATION
Britain’s economy is already showing signs of stagnation. Gauges of manufacturing and services output fell in October, while an index of U.K. consumer confidence by Nationwide Building Society fell to a record low. Unemployment as measured by International Labour Organization standards rose to the highest since 1994 in the three months through August.
Aviva Plc (AV/), the U.K.’s second-biggest insurer by market value, said Nov. 15 it plans to cut about 380 jobs after the termination of a venture with Royal Bank of Scotland Group Plc.
The central bank said yesterday that recent output indicators point to “broadly unchanged activity in the fourth quarter rather than a material contraction.”
In the third quarter, growth in industrial production and services was revised down by 0.1 percent from the previous estimate.