Britain's dominant services sector posted meagre growth in October, economic third quarter growth was revised down to 0.9pc and government borrowing rose. Here's how economists took the news.
James Knightley, ING
This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for. Government cash outlays are down as well, but this is purely down to lower interest costs resulting from the plunge in yields, helped by BoE purchases and the UK’s relative safe haven status. All in all, the UK appears to be ending 2012 not in particularly great shape and as such we suspect the Bank of England has more work to do with further policy stimulus likely in early 2013, especially if the worst fears over the US fiscal cliff materialise.
= Howard Archer, IHS Global Insight =
It currently looks touch and go as to whether the economy can avoid renewed contraction in the fourth quarter as it faces the unwinding of the Olympics boost. News (NasdaqGS: NWS - news) that service sector output only edged up 0.1% month-on-month in October reinforces belief that the economy is having a difficult fourth quarter, but at least services output was marginally positive and that gives a small boost to hopes that the economy will avoid renewed contraction.
While it really makes little difference whether the economy grows marginally in the fourth quarter, is flat or contracts marginally, it would be good for confidence if the economy could avoid a GDP decline and avert headlines of a “triple dip”.
The economy faces a difficult looking 2013 and we suspect it will find it will only manage to eke out growth of 1.1%.
We had 0.9, it looked quite a close call between 0.9 and 1.0. But, with the monthly industrial production numbers showing small downward revisions, we thought it would probably be trimmed. I suppose the Q3 number reinforces the weakness. "The more significant figure is the October services sector output number. This is the first official estimate we have for any Q4 month. It is not a great number but it is positive and it is better than the decline that had been expected. "On the basis of all the published data it looks like the fourth quarter will be broadly flat, rather than negative - based on the published data.
= Philip Shaw, Investec =
There's a lot of data being released and there's no single overriding trend. We're not surprised to see GDP revised down a touch but what matters a lot more are prospects for the fourth quarter and because of last week's construction data, we're more optimistic that a decline will be avoided. Current account again, it's reassuring to see that there's been a narrowing of the deficit over the third quarter. Effectively, as earnings from direct investment have bounced back after two quarters of weakness. Nonetheless, one would still reach the conclusion that imbalances in the economy remain.
Although we suspect that the GDP figures will be a bit better than expected over the next quarter, perhaps next couple of quarters, it is clear that the underlying pace of growth will remain weak for some time to come. "I think what's important here is whether the Bank of England's Funding for Lending Scheme has a positive effect on credit flows that the housing market picks up and that we see a sustained recovery in business investment as well.
= Alan Clarke, Scotiabank =
I actually think the monthly services [figure] was the most important one. That makes it all the more likely that the UK did not slip into a triple dip recession at the end of the year. The chances are that we could grow by 0.3 percent, maybe even more, because we had stonkingly good construction data and some growth in services, although clearly that could change in November and December.
Notwithstanding the drop in industrial production, I think we probably grew. So it has been a great end to the year.
The public finances are going in the wrong direction. But we know that there is all sorts of jiggery pokery going on with the transfer of coupons by the ONS (Office for National Statistics), probably next month. So, it is very hard to read too much into that data.