Surprise British growth data soothes double-dip fears

26th October 2010, Comments 0 comments

Britain's economy expanded by a surprisingly strong 0.8 percent in the third quarter, official data showed Tuesday, soothing fears of a double-dip recession and sending the pound surging.

And on a 12-month basis, the economy grew by 2.8 percent in the third quarter compared with equivalent output in 2009, the Office for National Statistics (ONS) added in a statement.

That was the strongest annual reading since 2007.

"These numbers will clearly ease near-term concerns over a possible double-dip in the UK economy," said Capital Economics analyst Jonathan Loynes in response to the strong growth in gross domestic product (GDP).

The quarterly figure, which was double market expectations, was largely due to major gains in services, construction and production.

The data comes one week after Britain unleashed the biggest public spending cuts for decades. Some analysts fear the austerity drive could push the country back into recession.

"UK growth provided a major upside surprise in the third quarter," said economist Howard Archer at the IHS Global Insight consultancy in London.

"Construction output surged by 4.0-percent quarter-on-quarter and 11.0 percent year-on-year as it extended the surge in activity seen in the second quarter."

In reaction, the pound rallied on expectations that it would dissuade the Bank of England (BoE) from pumping more money into the economy via its radical bond-purchasing programme any time soon.

Sterling jumped as high as 1.5870 dollars, hitting the highest level since October 20. And it also hit a similar peak at 87.85 pence against the euro.

"The unexpectedly sharp jump in UK GDP in the third quarter looks likely to delay a further bout of quantitative easing," added Loynes.

In recent weeks, sterling had been hammered by growing expectations that the BoE could launch more quantitative easing (QE) -- effectively printing more money -- to secure economic recovery.

However, the July-September period marked the fourth quarter running of expansion since the recession, which ended in late 2009. Analysts' forecasts had been for weaker quarterly growth of 0.4 percent.

Nevertheless, the data marked a significant slowdown from the 1.2-percent surge which was recorded in the second quarter -- which had been the fastest quarterly growth rate for nine years.

The ONS added on Tuesday that the previous April-June period had been skewed by bad weather in the first three months of 2010, which had hampered the fragile recovery.

"Allowing for the recovery in the second quarter following the bad weather at the start of the year, the underlying growth in the third quarter is broadly similar to that in the second quarter," it said.

Last week, Britain's Conservative-Liberal Democrat coalition government had announced plans to cut almost half a million jobs, slashing budgets and welfare benefits as it sought to curb a huge deficit.

"The growth in the third quarter was surprisingly confident, exceeding all expectations and it will provide some welcome relief to the coalition government," said trader Mark Bolsom at currency group Travelex.

"These figures will refresh hopes that the UK will avoid the much maligned double dip -- but we are going to have to wait until 2011 to see what impact spending cuts and tax hikes will have on the pace of economic growth."

© 2010 AFP

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