Good enough? GDP growth registers 0.5%

By Alex Stevenson

Britain's economy grew by 0.5% in the third quarter of 2011, statistics released this morning show.

Growth from the start of July to the end of September this year was greater than the 0.3% expected by most.

But analysts suggested that the second and third quarters had to be viewed together, as "special factors" like the royal wedding bank holiday had suppressed growth in April, May and June.

"On that basis," the Office for National Statistics explained, "GDP has grown by 0.6% in the last two quarters and by 0.5% in the last year".

The preliminary figure nevertheless showed an improvement from the 0.1% seen in the second quarter of 2011 and was welcomed as a "positive step" by chancellor George Osborne.

"We have to take these figures one step at a time – the economy has grown," he said.

"The news here in Britain is more positive, we have taken a positive step forward – better than many people were forecasting.

"But people have to be clear, it is of course a difficult journey we are on… we have to understand this journey is the only route that will take us to prosperity and recovery and we are laying the foundations for the future success of our country."

The third-quarter improvement was largely down to strong performances in the services and production sectors.

This quarter's figures were disappointing for the construction sector, however. It had grown by 1.1% in the second quarter but has subsequently shrunk by 0.6%.

TUC general secretary Brendan Barber said: "This was meant to be the quarter when the UK economy started bouncing back, but that hasn't happened. You have to go back nearly a century to find a slower recovery from a crash.

"No doubt ministers will try and blame the eurozone crisis, but these figures date from before the recent difficulties."

Government sources were quick to compare the figures with those of the US economy, which grew by 0.6%.

But Labour said the US economy had grown by 1.6% in the last 12 months, compared to Britain's 0.6%.

"Already, the stagnant growth and higher unemployment that George Osborne's failing policies have delivered mean the government is set to borrow £46 billion more than they planned," shadow chancellor Ed Balls said.

"After today's figures, the chancellor will now have to downgrade his growth forecasts for a fourth time later this month – and revise up again his borrowing forecasts.

"These are really worrying times for families and pensioners struggling to pay the bills, young people out of work in record numbers and businesses on the edge.

"The combination of sluggish growth, rising unemployment, falling confidence and the latest surveys indicating a contracting manufacturing sector and depressed business confidence mean this is no time for complacency from the government."

Commentators acknowledged that the figure was better than anything seen recently, but was still not "par for the course".

John Philipott, chief economic adviser at the Chartered Institute of Personnel and Development, said the underlying growth rate of 0.25% was "better than nothing" but "barely amounts to an economic recovery".

"Growth at this rate is not only too weak to stem the rise in unemployment but increases the likelihood of a 'job loss recovery'," he warned. "That is where the economy expands but not by enough to prevent private sector employers from laying off staff."

Looming government cuts could make GDP's performance in the next nine months worse, Dr Philpott suggested, reinforcing the risk of a double-dip recession.