Doubts remain despite 1% UK growth

Doubts over the strength of the UK’s recovery persisted today despite figures showing an end to the longest double-dip recession since 1950.

Doubts remain despite 1% UK growth

Doubts over the strength of the UK’s recovery persisted today despite figures showing an end to the longest double-dip recession since 1950.

Output jumped by 1% between July and September but the fastest growth for five years was flattered by the effect of the Olympic Games and a bounce back from the Queen’s Diamond Jubilee celebrations in the previous quarter.

As car giant Ford announced 1,400 job losses and the closure of two UK sites, Chancellor George Osborne said that the UK was on the right track but there was “still a long way to go”.

The UK has been battling against sluggish consumer spending, Government cuts and high unemployment, while the struggling eurozone has hit exports.

While the third quarter beat expectations and grew at the fastest pace since the third quarter of 2007, the economy is still 3.1% below its peak in the first quarter of 2008.

Howard Archer, chief UK and European economist at HIS Global Insight, said the economy is “far from out of the woods” and added it was “premature for the Chancellor to contemplate singing in his bathtub”.

The third quarter had one more working day than the previous quarter, due to the Queen’s Diamond Jubilee, which would have affected the estimate, the ONS said.

Meanwhile, the London 2012 Olympics and Paralympic Games also affected economic activity in the third quarter.

Olympic ticket sales increased GDP growth in the period by 0.2 percentage points, while the event is likely to have lifted a range of other services including employment agencies, creative arts, office administration, accommodation and food and beverages.

London Mayor Boris Johnson said: “As I predicted, the Olympic gloomsters and doom-mongers have been proved wrong once again.”

The economy is expected to continue growing in the quarter from October to December but at a much slower rate, with City predictions coming in at around the 0.3% mark.

Ford’s jobs announcement came on the day Sir Martin Sorrell’s advertising firm WPP downgraded its forecasts for the second time in three months as its clients become “increasingly cautious”.

Chancellor George Osborne said the UK still faced “many economic challenges at home and abroad”.

But he went on: “By continuing to take the tough decisions needed to deal with our debts and equip our economy for the global race we’re in, this Government is laying the foundations for lasting prosperity.”

The largest contribution to the surge came from the powerhouse services sector, which makes up around 75% of the total economy and grew at 1.3%, following a 0.1% drop in the previous quarter, the ONS said.

Industrial production increased by 1.1% between July and September, the ONS said, following a 0.7% decline in the previous quarter.

Manufacturing contributed the most to the increase in industrial production, followed by water and sewerage industries.

The construction sector remained under pressure in the third quarter, however, shrinking 2.5%, following a 3% drop in the previous quarter.

Within the services sector, the index of distribution, hotels and restaurants rose 1.6%, transport sector grew 0.8%, business services and finance increased 1% and government services lifted 1.6%.

Shadow chancellor Ed Balls welcomed the economy’s emergence from recession but said the Government needed to do more to “secure and strengthen” growth.

“Our economy desperately needs an injection of confidence. But this is no time for complacency and wishful thinking,” he said.

“Today’s figures show that underlying growth remains weak and that our economy is only just back to the same size as a year ago – 12 months of damaging flatlining which has seen borrowing rise in the first half of this year.”

Meanwhile, a statistics watchdog is investigating claims the Prime Minister breached rules by yesterday hinting that the GDP figures would be positive.

Labour said Mr Cameron’s assertion in the Commons yesterday that positive signs on the economy “will keep coming” was a clear reference to the keenly-awaited numbers.

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