UK economy expands more than forecast

Updated: 2011-11-02 07:55

(China Daily)

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LONDON - The UK economy grew faster than forecast in the third quarter as manufacturing and services industries rebounded from disruptions during the previous three months.

GDP rose 0.5 percent from the second quarter, when it increased 0.1 percent, the Office for National Statistics said on Tuesday. Economists forecast a 0.3 percent increase, based on the median estimate of 36 economists in a Bloomberg News survey.

A separate report showed manufacturing unexpectedly shrank in October, pointing to continued weakness in the economy at the start of the fourth quarter.

UK economy expands more than forecast

The Bank of England expanded stimulus for the first time in two years last month and the government is working on a plan to boost lending as Europe's debt crisis raises the risk of another UK recession. With the rise in third-quarter GDP partly due to a rebound from one-time factors, Bank of England Markets Director Paul Fisher has said the pace may not be sustained and there's a chance of stagnation in the current quarter.

"We doubt that rate of expansion will last," Alan Clarke, an economist at Scotia Capital in London, said before the data was released. "The bulk of the strength is likely to prove temporary and is the result of the reversal of influences that held back second-quarter growth."

An index of manufacturing by the Chartered Institute of Purchasing and Supply fell to 47.4 in October from 51.1 in September. That's lower than the 50 reading that was the median forecast in a Bloomberg survey.

In the third quarter, UK services output grew 0.7 percent, while industrial production increased 0.5 percent, the statistics office said. The increase in services was led by finance and business services, which jumped 0.8 percent, the most since the third quarter of 2007, just before the start of the financial crisis. Within that category, growth was led by call centers, trade shows and office support businesses.

The Office for National Statistics said the interpretation of the third-quarter GDP estimate is "complicated" by factors in the second quarter, including the earthquake in Japan in March. It "may be wise" to look at the second and third quarters together, it said, adding that growth was 0.6 percent in the six-month period.

Transport, storage and communications rose 0.9 percent in the third quarter from the previous three months. Within production industries, manufacturing increased 0.2 percent. Construction fell 0.6 percent.

In a separate report, the statistics office said services, which account for about 75 percent of the economy, grew 0.3 percent in August from the previous month and were up 0.9 percent on the year. On a three-month basis, the index of services rose 0.4 percent.

The Bank of England expanded its bond-purchase program by 75 billion pounds ($120 billion) to 275 billion pounds on Oct 6 as Europe's debt crisis raised bank funding costs and threatened to push the UK economy back into recession.

Bloomberg News