Worthy News: UK recovery faster than expected

Tuesday, 26 October 2010

UK recovery faster than expected

The latest GDP figures may affect the Bank of England's plans for quantitative easing

The economic recovery in Britain is expected to show a sharp slowdown when figures are released later on Tuesday.

The economy grew by a healthy 1.2% in the second quarter of the year, but most analysts predict that in the third it will have expanded by around 0.4%.

The gross domestic product (GDP) figures released by the Office for National Statistics (ONS) cover the three months to the end of September.

Some economists say the UK has stalled on the back of spending cut threats.

Philip Shaw, from Investec Securities, says the prospect of domestic cuts and international uncertainties make it difficult for the UK to "establish proper momentum".

'Inevitable bounce'

And HSBC analyst, Madhur Jha, says households remain worried about the labour market and wealth from the housing market.

"At the same time, they want to pay down debt because of the uncertainty surrounding the future outlook of growth," he says.

Consumers may have already been worried about the government cuts, he adds.

But Howard Archer, chief economist at IHS Global Insight, warns against reading too much into the third quarter figures, because preliminary ONS estimates can be inaccurate.

BBC 5 live's Declan Curry explains just what GDP stands for, and why we should care

The BBC's chief economics correspondent, Hugh Pym, says growth was so rapid between April and June that a slowdown seems almost inevitable.

The 1.2% rise in economic output in that period was seen by some as an inevitable bounce back after a deep recession, and unlikely to be repeated, he adds.

Confidence in the manufacturing and services sectors has dropped due to concerns surrounding the impact of the spending cuts.

And weaker-than-expected retail sales figures for September has added to the concerns, with sales slipping 0.2%.

Meanwhile, the housing market has also started to suffer. Figures released by the Nationwide Building Society later this week are expected to show a 0.4% fall in property prices between September and October.

The third quarter GDP figures are also likely to have a bearing on the Bank of England's plans for quantitative easing (QE) - measures to pump more money into the economy.