UK growth up slightly on forecast but dark clouds on horizon

The British economy grew more strongly last year than previously thought. Output growth was 2.1 per cent in 2010, up from an estimate of 1.8 per cent. Photo / ThinkStock

The British economy grew slightly more strongly in the third quarter of 2011 than previously believed, but was flat in the second quarter, the Office for National Statistics said.

Growth in the three months to September was 0.6 per cent, up from an initial estimate of 0.5 per cent. But growth in the three months to June was revised down by the statistics body from 0.1 per cent to zero.

The change in the third quarter estimate was driven by a revision to businesses investment, which grew by 0.3 per cent over the quarter, after a previous estimate of a 1.4 per cent contraction.

The statistics office also said that the economy grew more strongly last year than previously thought. Output growth was 2.1 per cent in 2010, up from an estimate of 1.8 per cent.

The revisions do little to change the overall picture of a weak economy, and analysts warned that Britain is still in danger of undergoing a contraction in the coming months.

"All told there is not a lot in this release to change our view," said David Tinsley of BNP Paribas.

"We expect to see a contraction in GDP in the fourth quarter of this year and first quarter of next. So the UK will experience a short and shallow technical recession."

The statistics also showed that the UK's current account deficit in the third quarter of 2011 hit £15.2 billion, the highest on record.

Net trade subtracted from growth over the quarter, undermining the Chancellor's hopes of generating an export-led recovery. The deficit was driven up by a rise in the value of imports.

Real household disposable income also grew in the third quarter at 0.3 per cent, after registering a 1.3 per cent increase in the preceding three months.

But the statistics also showed that household income was down by 0.2 per cent over 2010, the first fall since 1982. And 2011 is on course to register further contraction.

Household debt as a percentage of GDP fell to 152.6 per cent of GDP in the third quarter. The savings ratio rose to 6.6 per cent.

- Independent