UK export growth helped the economy extend its recovery in the third quarter as growth in consumer, government and investment spending slowed by more than half.
GDP rose 0.8 percent from the previous three months, when it increased 1.2 percent, the Office for National Statistics said yesterday in London. That matched an initial estimate on Aug. 26 and the median forecast of 30 economists in a Bloomberg News survey. Exports rose 2.2 percent after a 2.3 percent increase in the previous three months.
Momentum in the economy may wane as the government implements the biggest budget squeeze since World War II and strains in Ireland, the UK’s fifth-biggest export market, and the eurozone deepen. The outlook has divided Bank of England policymakers as they debate whether to expand bond purchases or raise the key interest rate to tame inflation.
“The economy has to get past the fiscal tightening next year and there’s a high degree of uncertainty on how 2011 will unfold,” said Philip Shaw, chief economist at Investec Securities in London. “The news on exports is encouraging, but we’ve had false dawns before.”
Consumer-spending growth slowed to 0.3 percent in the third quarter from 0.7 percent in the previous three months, the statistics office said. Government spending rose 0.4 percent, down from 1 percent, and investment growth eased to 0.6 percent from 1.4 percent. Imports rose 0.7 percent and net trade contributed 0.4 percentage points to GDP. Inventories added 0.1 percentage points.
A separate report showed business investment fell 0.2 percent in the third quarter from the previous three months. It was up 4.6 percent from a year earlier. An index of services in September rose 0.6 percent from the previous month.
The Organisation for Economic Cooperation and Development (OECD) said on Nov. 18 that UK growth would “remain subdued” next year as the spending cuts bite. The government’s plans to reduce the deficit to 2 percent of economic output by 2015 from more than 10 percent today involve 490,000 public-sector job losses and sweeping welfare cuts.
Nevertheless, the economy will gain momentum in 2012 as the global recovery drives exports and higher business confidence spurs corporate investment, the OECD said. The Paris-based group said the central bank should start raising the key rate from a record low of 0.5 percent in the second half of next year.
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