Financial Times

December 22, 2011 10:52 am

UK third-quarter growth bounces back

By Norma Cohen, Economics Correspondent

Britain’s output in the three months to September was unexpectedly revised up on Thursday, but this largely reflects the fact that economic growth in the second quarter is now believed to have been zero.
The Office for National Statistics said the economy expanded by 0.6 per cent in the third quarter, up from an initial estimate of 0.5 per cent.

Output in the second quarter was revised down to nil from 0.1 per cent.
The latest GDP data for the third quarter continue to indicate that growth “is quite concentrated in a small proportion of components and is not broadly based“, the ONS said.
The ONS measures GDP in various ways: based on output, where growth was concentrated in the services industries; on expenditure, where growth was driven largely by an increase in inventories; and by income, where growth reflected higher payments to workers and some growth in the operating surpluses of private, non-financial corporations.
Chris Williamson, economist at Markit, noted that the second quarter of 2011 covered unusual circumstances that led to a particularly weak reading.
When official preliminary estimates of second-quarter GDP were unveiled in July, the ONS said output for the quarter may have been artificially depressed by as much as 0.5 percentage points.
“The expansion largely reflected a bounce-back from temporary weakness in the second quarter, which had been caused by the extra bank holiday and disruptions to business globally due to the Japanese earthquake,” Mr Williamson said.
“In fact, the second quarter was even worse than previously thought, with meagre growth of 0.1 per cent revised down to zero. “
Despite some growth in incomes, the data show the weak position of UK households, where final consumption was flat in the third quarter. At the same time, this was the first time for a year that households did not cut consumption.
The level of household consumption stands 1.0 per cent below that in the third quarter of 2010. The household savings ratio rose in the third quarter from the second, standing at 6.6 per cent from 6.4 per cent in the second quarter.
However, business investment for the third quarter was revised upwards to show a gain of 0.3 per cent, rather than the decline initially reported.
The manufacturing sector showed particularly strong growth of 6.0 per cent for the quarter. Construction output is now estimated to have been positive in the third quarter, rather than declining as initially reported.
Meanwhile, the UK current account deficit was at a record. This was due to a widening trade deficit as well as an income surplus of only £0.3bn, the smallest since the end of 2000 when the dot com bubble was bursting.