Blow For Osborne As UK Growth Worse Than Thought

UK growth this year has been weaker than previously thought, according to revised official figures.

The Office for National Statistics (ONS) now believes gross domestic product (GDP) expanded by just 0.4% in the the third quarter, down from a previous estimate of 0.5%.

Meanwhile second quarter growth was revised to 0.5%, down from 0.7%.

It (Other OTC: ITGL - news) means that while the economy has been expanding for 11 successive quarters, there has been little improvement in the pace of the recovery after it slowed sharply to 0.4% in the first quarter of 2015.

Growth in the year to the third quarter was revised down to 2.1% from 2.3%.

The unexpected downward revision was blamed on weaker growth in the services sector, especially in financial services.

It is a fresh blow to Chancellor George Osborne, a day after it was revealed that borrowing - excluding the effect of bank bailouts - rose to £14.2bn in November, £1.3bn up on the same month last year.

Investec (LSE: INVP.L - news) economist Philip Shaw said: "At the risk of sounding unseasonably downbeat, figures released over the past couple of days have cast doubt on both the pace of fiscal improvement and the momentum behind the recovery."

The figures add to the likelihood that a rise in UK interest rates from the historic low of 0.5% still looks some way off, with the Bank of England unlikely to follow suit swiftly after the US Federal Reserve last week raised rates for the first time in nearly a decade.

Economists have been expecting a UK hike some time in 2016.

Kallum Pickering, senior UK economist at Berenberg, said the revisions have left the economy ending the year "on a very sour note".

"These changes significantly alter the quarterly growth story for 2015. Rather than a weak first quarter, a strong second quarter and an OK third quarter, disappointingly, data now show that the economy has been growing below trend all year," he said.

A Treasury spokesman said: "We should be clear, as the IMF said earlier this month our recent economic performance has been strong.

"The UK was the fastest growing economy in the G7 last year, we're leading the pack with the US this year, we have a record high employment rate and the deficit is down."

Ruth Miller, UK economist at Capital Economics in London, said the figures showed that "the economic recovery has less momentum than previously thought and still looks worryingly unbalanced".

She (Munich: SOQ.MU - news) added: "Looking ahead to next year, a number of factors threaten to undermine the recovery. However, we think that the economy should still weather these well."