UK economic growth in 3rd quarter revised downward
Wednesday, December 22, 2010
LONDON (AP) — Britain’s economy grew by 0.7 percent in the third quarter, less than the 0.8 percent first estimated, according to official data released Wednesday that suggest the recovery will be weak in the new year.
The Office for National Statistics also revised down its second quarter growth figure, to 1.1 percent from 1.2 percent, due in part to weaker construction activity than earlier calculated.
“The revision has taken the shine off the data and markets will be disappointed that U.K. growth is not as robust as it initially seemed,” said Mark Bolsom, head of the U.K. Trading Desk at Travelex Global Business Payments.
Vicky Redwood, senior U.K. economist at Capital Economics, said details within the report were a mixed bag of signals. Government spending now appears to be a smaller component but offset by a gain in investment, and the household savings rate was revised upward from 3.5 percent to 5 percent.
“The upshot is that a continued strong recovery seems far from assured — we expect GDP growth of just 1.5 percent next year,” Redwood said.
Second-quarter construction output was revised down from 9.5 percent to 7 percent, and growth in Britain’s big financial and services sector was revised down from 1 percent to 0.9 percent.
Elsewhere, minutes from the latest meeting of the Bank of England’s Monetary Policy Committee showed some greater concern about inflation but no change among the nine members on what should be done.
Seven voted to keep the base rate at 0.5 percent and were against any more asset purchases to stimulate the economy.
Member Andrew Sentance was again alone in voting to raise the base rate to 0.75 percent, and Adam Posen was the lone advocate for another 50 billion pounds worth of quantitative easing.
Among the seven, the minutes said most “considered that the accumulation of news over recent months had probably shifted the balance of risks to inflation in the medium term upwards.”
However, “for most members, the balance of risks had not changed sufficiently to warrant a change in policy.”
The economy faces a significant inflationary rise in January when value-added tax, the broad-based lavy on sales, rises from 17.5 percent to 20 percent. The new year will also feel the impact of cuts in government spending and employment.
“So long as the demand outlook appears subdued, and pay growth remains weak, most MPC members seem disinclined to tighten policy,” said Simon Hayes at Barclays Capital.
“We continue to forecast unchanged policy until late next year.”
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