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A man passes the Swiss RE building, also known as the Gherkin, in the financial district City of London June 22, 2010. (LUKE MACGREGOR/Reuters/LUKE MACGREGOR/Reuters)
A man passes the Swiss RE building, also known as the Gherkin, in the financial district City of London June 22, 2010. (LUKE MACGREGOR/Reuters/LUKE MACGREGOR/Reuters)

Britain on brink of recession despite GDP growth Add to ...

The United Kingdom’s economy is teetering on the brink of recession despite a solid performance in the third quarter, increasing pressure on the government to boost growth as fresh turmoil in the euro zone creates new risks.

Gross domestic product grew by 0.5 per cent on the quarter as business services and finance posted the strongest quarterly increase in four years, the Office for National Statistics said on Tuesday, a notch more than analysts had forecast.

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However, the Purchasing Managers’ Index survey released earlier showed manufacturing activity in October fell at its sharpest monthly rate since June, 2009, when Britain was still in recession.

Economists see most of the third-quarter growth as a mere rebound from weak growth of 0.1 per cent in the second quarter when an extra holiday for the royal wedding and supply-chain disruptions caused by the tsunami in Japan shaved off as much as 0.5 percentage points from quarterly growth.

“This performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come,” said Howard Archer, economist at IHS Global Insight.

“Most recent data and survey evidence portray an economy that is struggling hugely, and it looks to be in serious danger of stagnating or even worse in the fourth quarter,” he said.

The ONS said the annual growth rate eased to 0.5 per cent in the three months through September, from 0.6 per cent in the second quarter.

Business services and financial sectors were the biggest contributor to overall growth in the third quarter, growing by 0.8 per cent.

Overall services output grew by 0.7 per cent. Industry output rose by 0.5 per cent, with manufacturing posting only 0.2 per cent growth. Construction was down 0.6 per cent on the quarter.

The Bank of England launched a fresh round of quantitative easing in early October, pumping another £75-billion of cash into the economy, as policymakers warned that the euro crisis threatens to push Britain into recession.

The announcement by Greece to hold a referendum over last week’s euro zone rescue deal has introduced new uncertainty and upset markets.

Business secretary Vince Cable told Reuters in an interview Monday that the country can still avoid recession.

But a string of surveys have painted a bleak picture, with the PMI’s fall to 47.4 points hinting that the manufacturing sector made an extremely weak start to the fourth quarter.

Consumer confidence has slumped to levels that previously heralded the start of a recession and the CBI industry lobby’s survey showed that manufacturers suffered the biggest drop in orders in a year and expected to cut production.

With unemployment already at a 17-year high in the three months to August and many households worried about job security and their own finances, the pressure is rising on the government to ease its austerity drive and do more to boost growth.

Chancellor George Osborne’s Treasury is trying to come up with ways to increase growth without compromising the government’s pledge to erase the deficit of some 10 per cent of GDP over the next five years.

The ONS said it had no evidence that the riots in major cities in August had a significant impact on GDP. The office did not provide an estimate of how much third-quarter GDP had been boosted by a rebound from the special factors that hit growth in the second quarter.

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