UK economy grew by 0.8% in last quarter | Business | guardian.co.uk

Economic growth was double that forecast by the City. Photograph: Bloomberg/Bloomberg via Getty Images

Fears that Britain is sliding towards a double-dip recession receded today, after the UK economy grew by 0.8% in the past three months.

UK GDP grew twice as strongly as the City had expected between July and September, with most analysts expecting growth of just 0.4%. However, the 0.8% rise was still slower than the surprisingly robust growth of 1.2% recorded in the previous quarter.

The government also received a boost from ratings agency Standard & Poor's, which raised its outlook for the UK to "stable" today, having studied the details of last week's spending review.

George Osborne said that S&P's move was a "vote of confidence" in the government's economic policies.

"The country's credit rating, which had been put at risk by the previous government, has been secured," the chancellor said. Osborne also said that a "steady recovery" was now under way.

Much of the increase in GDP was due to the construction industry, which grew by 4% during the quarter. The services and industrial sectors both expanded by 0.6%, the Office for National Statistics said.

Shadow chancellor Alan Johnson argued that the UK economy was still feeling the benefit of the stimulus measures taken by the last government.

"The risk going forward is that the government has a plan to cut one million jobs, but no plan to support the private sector in replacing them," Johnson said.

Economists agreed that the GDP data indicated that the UK was in better shape than feared. However, growth is still expected to slow in the coming months.

James Knightley of ING said: "The government will no doubt take this as a sign that the private sector can fill the gap created by public sector cuts, but with consumer confidence, hiring intentions surveys and housing activity data all softening, we remain cautious."

George Buckley of Deutsche Bank said that the UK Treasury would be heartened by the GDP data.

"The UK government will be pleased with a more robust economy and will feel more comfortable having embarked on its tighter fiscal source," Buckley predicted.

A stable outlook

Standard & Poor's had previously held a "negative" outlook on the UK, but is now more optimistic.

"We believe that the completion of the government's spending review, announced on 20 October, reduces uncertainties about its political resolve to tackle the challenges resulting from the structural deterioration in public finances between 2007 and 2009," S&P credit analyst Trevor Cullinan said.

S&P believes that the UK deficit will fall to 3% of GDP by 2014, down from an earlier prediction of 4%. However, the ratings agency forecasts that Britain's economic growth will average only 2% over the next five years, slightly less than the official forecast of 2.4%.

The pound rose against other major currencies, with sterling gaining more than one cent against the dollar to $1.589 by midday.

The boom in construction work in recent months has been attributed to work delayed by the bad weather at the start of the year.

Britain has now enjoyed its strongest six-month period of growth since the first half of 2000. The UK economy has grown by 2.8% over the past year, after the deepest recession in decades.

Today's data also suggests that the Bank of England is now less likely to launch fresh efforts to stimulate the economy, at least in the near term.

Howard Archer, chief European and UK economist at IHS Global Insight, said: "The resilience of GDP growth in the third quarter appears to put any revival of quantitative easing by the Bank of England on the back burner for now at least. However, it remains a serious possibility should growth slow markedly over the coming months."

via guardian.co.uk