Britain is on track to narrowly avoid a triple dip recession thanks to solid activity in the powerhouse services sector, despite weaker growth than thought in the three months to September and mushrooming public borrowing.
The Office for National Statistics (ONS) revised its estimate of third quarter growth from 1pc to 0.9pc but released services output data for October, the first month of the fourth quarter, that showed a gain of 0.1pc - better than expectations of a 0.2pc contraction.
Alan Clarke, UK economist at Scotiabank, said: “Q3 [the third quarter] is ancient history and this [downgrade] doesn’t make the blindest bit of difference. The monthly services output data posted a solid 0.1pc gain, making it unlikely that the UK economy contracted during the fourth quarter.”
The figures were released alongside weak public finances. Borrowing in November (Xetra: A0Z24E - news) rose to £17.5bn, £1.2bn above 2011 and higher than forecasts for £16bn, as tax receipts disappointed again and spending rose a sharp 6.3pc. For the first eight months of the financial year, borrowing has increased 9.9pc to £92.7bn, excluding one-off items.
Howard Archer, economist at IHS Global insight, said: “If this trend were to continue over the rest of the fiscal year, borrowing would come in at around £134bn, which would be £14bn above target.”
The Office for Budget Responsibility controversially forecast that borrowing would fall slightly this year from £121.6bn to £119.9bn. The figures will be flattered by an expected £3.5bn gain from the auction of the 4G mobile phone spectrum , but economists said there was a high risk of overshooting.
A breakdown of the third quarter GDP figures showed that consumer spending had been weaker than expected, rising by 0.4pc rather than 0.6pc. The reduction in spending was mirrored by an increase in the savings ratio from 7.4pc to 7.7pc.
“Without the Olympics boost, spending may well have fallen,” Vicky Redwood of Capital Economics said.
There was more positive news on business investment and the current account. Business investment increased by 3.8pc to £31.5bn in the quarter with manufacturing investment rising 4.7pc to £3.3bn. Business investment has recovered 15.7pc from its low of £27.2bn in the fourth quarter of 2009 but remains below its £35.6bn peak in the fourth quarter of 2007.
Revisions to past data also showed that the UK current account has been narrower than previously estimated for the past two years, indicating that the economic rebalancing has been more successful than thought.
The current account deficit was 3.3pc in the three months to September, below less severe than the 4.6pc second quarter figures, which was itself revised down from the previous estimate of 5.1pc.
“The weakness in the current account looks marginally less troubling,” Steven Bryce, economist at Credit Suisse (NYSE: CRP - news) , said. “The movement downward does suggest that as financial and economic conditions in Europe improve the UK current account will be able to correct further.
A Treasury spokesman said: “Today’s various data underline what the Chancellor said to Parliament at the Autumn Statement: that it’s taking time, but the British economy is healing. The deficit is down by a quarter since 2010, and more than a million private sector jobs have been created.”