British economy suffers growth downgrades
British economic growth for the first three quarters of 2010 was downgraded Wednesday in a fresh piece of bad news for the economy, which faces headwinds next year from government austerity measures.
Gross domestic product -- the total value of all the goods and services produced in the economy -- grew by 0.7 percent in the July-September period.
"UK gross domestic product (GDP) in volume terms rose by 0.7 percent compared with the previous quarter, revised down from the 0.8 percent rise published in November," the Office for National Statistics said in a statement.
In a further blow, the ONS also trimmed its estimate for second-quarter expansion to 1.1 percent, compared with 1.2 percent previously.
And first-quarter economic growth was pegged back to 0.3 percent from 0.4 percent.
The downward revision in the third quarter was largely due to lower growth from the construction sector, industrial output and business services.
The downbeat news comes one day after data showed that British state borrowing soared in November to the highest monthly level since records began.
IHS Global Insight economist Howard Archer argued that the economy was holding up -- but would face major headwinds next year as the government imposes deep spending cuts and large tax hikes to slash a huge deficit.
"While the modest downward revision to GDP growth ... is disappointing, it does not fundamentally change the picture that economic activity held up well in the third quarter after robust growth in the second quarter," he said.
However, he added: "We expect growth to lose significant momentum over the coming months as fiscal tightening increasingly bites and adds to the pressures on already stretched consumers."
In the foreign exchange market, the British pound sank against rival currencies following news of the downgrades.
"This is really disappointing news," said Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments in London.
"The revision has taken the shine off the data and markets will be disappointed that UK growth is not as robust as it initially seemed."
He added: "It's a bad end to the year for sterling, as I expect growth to slow sharply next year as spending cuts and tax hikes start to bite."
Britain is facing the prospect of taxation hikes and massive cuts to public spending in 2011 as the Conservative-Liberal Democrat coalition government seeks to slash a huge deficit.
On January 4, the VAT sales tax on goods and services rises to 20 percent from 17.5 percent currently.
The ONS added on Wednesday that British GDP climbed by 2.7 percent between July and September compared with the third quarter in 2009. That was also a modest downgrade from the previous figure of 2.8 percent.
Market expectations had been for no change for both the quarterly and the annual readings for the third quarter.
In November, Britain raised its official 2010 growth forecast to 1.8 percent from 1.2 percent, citing a stronger-than-expected recovery.
However, the economy was expected to grow more slowly than expected in 2011 and 2012, as the sweeping austerity measures begin to bite.
© 2010 AFP