UK economic growth picks up to 0.5%

George Osborne: ''The British economy has a difficult journey to take''

The UK economy grew by 0.5% in the third quarter of 2011, according to the Office for National Statistics (ONS).

The growth in the July-to-September period compared with a 0.1% expansion in gross domestic product (GDP) in the previous quarter.

But analysts said growth in the second quarter of the year had been dampened by one-off factors.

As a result, the third-quarter figures should not be interpreted as a big economic rebound, they added.

Output of the production sector rose 0.5% in the third quarter, compared with a 1.2% fall previously.

Service sector growth was up 0.7%, against a rise of 0.2% in the previous quarter.

The ONS emphasised that growth in the April-to-June period had been hindered by factors such as the extra bank holiday for the royal wedding.

James Knightley, at ING Financial Markets, said: "While the Q3 growth rate looks respectable, it is important to remember that this follows a Q2 figure depressed by having fewer working days because of the royal wedding and supply disruptions caused by the Japan earthquake/tsunami.

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"So for the economy to have only grown 0.5% in Q3 suggests the underlying picture remains weak," Mr Knightley said.

Howard Archer, economist at IHS Global Insight, added: "This performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come."

However, Chancellor of the Exchequer George Osborne described the figures as "a positive step" and better than many people had forecast.

"Of course the British economy has got this difficult journey. It is a journey made more difficult by the kinds of things you see for example today in the markets because of the situation in the eurozone.

"But we are determined to finish this journey," Mr Osborne said.

Asked whether the government would stick to its austerity plans, Mr Osborne said: "We have to understand that this journey is the only route that will take us to prosperity and recovery."

How recessions compare

Shadow chancellor Ed Balls said the coalition government should not blame the eurozone debt crisis.

"The fact is that our recovery was choked off well before the eurozone crisis of recent months by spending cuts and tax rises which go too far and too fast," he said.

But the EEF employers' group drew some cautious comfort from the ONS figures.

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There's an important debate now raging among economists about how much of the output lost since 2007 will ever be made up”

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EEF chief executive Terry Scuoler said: "Despite the seemingly endless stream of gloomy news from Europe, the UK economy seems to have weathered the turbulent summer months.

"Today's modest figures are better than expected, but global challenges are growing, confidence is fragile and investment plans remain on hold."

However, there was disappointing news from the UK manufacturing sector in the latest Markit Purchasing Managers' Index, which was also released on Tuesday.

The index for manufacturing activity in October fell to 47.4 points, from 50.8 points in September. Any reading above 50 indicates expansion, while a reading below indicates contraction.

Sectors of the economy

Rob Dobson, senior economist at Markit, said: "The UK manufacturing PMI fell sharply back into contraction territory in October.

"The most worrying aspect of the survey is the trend in new orders, which declined at the quickest pace since March 2009. Companies are facing tough conditions in both domestic and overseas markets, meaning that output is increasingly being sustained through the depletion of backlogs of work.

"A marked recovery in the replenishment rate of order books is needed to prevent the renewed manufacturing downturn becoming embedded," Mr Dobson said.

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