British exports extend recovery

BRITISH export growth helped the economy extend its recovery in the third quarter as growth in consumer, government and investment spending slowed by more than half.

Gross domestic product rose 0.8% from the previous three months, when it increased 1.2%, the Office for National Statistics said in London. That matched an initial estimate on August 26 and the median forecast of 30 economists in a Bloomberg News survey.

Exports rose 2.2% after a 2.3% increase in the previous three months.

Momentum in the economy may wane as the government implements the biggest budget squeeze since WWII and strains in Ireland, Britain’s fifth-biggest export market, and the euro area deepen.

The outlook has divided Bank of England policymakers as they debate whether to expand bond purchases or raise the key interest rate to tame inflation.

“The economy has to get past the fiscal tightening next year and there’s a high degree of uncertainty on how 2011 will unfold,” said Philip Shaw, chief economist at Investec Securities in London. “The news on exports is encouraging, but we’ve had false dawns before.”

Consumer-spending growth slowed to 0.3% in the third quarter from 0.7% in the previous three months, the statistics office said.

Government spending rose 0.4%, down from 1%, and investment growth eased to 0.6% from 1.4%. Imports rose 0.7% and net trade contributed 0.4 percentage points to GDP. Inventories added 0.1 percentage points.

The pound was little changed against the dollar after the data were published, and was at $1.578 as of 9.51am in London. A separate report showed business investment fell 0.2% in the third quarter from the previous three months.

It was up 4.6% from a year earlier. An index of services in September rose 0.6% from the previous month.

The euro-area economy is also cooling. GDP growth slowed to 0.4% in the third quarter from 1% in the previous three months.

In the US, where the Federal Reserve pledged this month to buy $600bn in Treasury securities, growth was an annual 2.5% in the third quarter, data showed.