(Updates with comment from opposition leader starting in 11th paragraph.)
Nov. 24 (Bloomberg) -- U.K. economic growth accelerated in the third quarter as stockbuilding and government spending offset weak consumer spending and business investment
Gross domestic product rose 0.5 percent from the previous quarter, when it increased 0.1 percent, the Office for National Statistics said today in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists. Consumer spending was flat on the quarter, while investment fell 0.2 percent. Underlying growth “is weak,” the office said.
The Bank of England, which has restarted bond purchases to aid the recovery, said yesterday that underlying growth was probably weaker than the reported figure due to “heightened uncertainty” related to the euro-area crisis. The bank slashed its 2012 growth forecast by more than half and policy makers have signaled more stimulus may be needed in future.
“We don’t see any significant improvement or a change in conditions coming soon,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “There will be a pickup in growth as 2012 progresses, but next year will feel very similar. But there’s no alternative. We’re in no position to engage in fiscal stimulus.”
From a year earlier, the economy grew 0.5 percent, the statistics office said. Growth in the second quarter partly represented a rebound from disruptions in the previous three months caused by March’s earthquake in Japan and an extra public holiday to mark the wedding of Prince William and Kate Middleton on April 29.
The pound rose against the dollar and traded at $1.5539 as of 12:18 p.m. in London, up 0.1 percent on the day.
Government spending rose 0.9 percent from the previous three months, when it increased 1.1 percent. Inventories rose by 2.9 billion pounds ($4.5 billion), contributing 0.7 percentage points to growth, the most in a year. Stockbuilding was driven by manufacturing as supply chains returned to normal after the Japanese quake, as well as electricity, gas and water supply.
Exports declined 1 percent on the quarter, while imports rose 0.3 percent, according to today’s report. Net trade subtracted 0.4 percentage points from third-quarter growth. In a separate report, the statistics office said business investment fell 1.4 percent in the third quarter.
Economists said the composition of GDP pointed to a weakening outlook, with stockbuilding likely to depress factory output in coming months. A gauge of manufacturing orders fell to a 13-month low in November, the Confederation of British Industry said today. Meanwhile, the government is cutting spending to tackle the budget deficit and exports, touted by Prime Minister David Cameron as the engine of economic growth, are weakening.
The statistics office said the squeeze on household incomes and an uncertain labor market is weighing on confidence. Growth over the last year has been concentrated in “just a few components,” while there is evidence that households are taking steps to reduce their debts and increase savings, it said.
The opposition Labour Party leader, Ed Miliband, said the growth figures demonstrated why “David Cameron needs to change course next week,” when his finance minister, George Osborne, presents his end-of-year economic statement in Parliament.
“It is time for Mr. Cameron and Mr. Osborne to stop blaming the snow, the royal wedding, and the euro-zone crisis for Britain’s economic emergency,” Miliband said in a speech in London today. “It is time for our out-of-touch government to look at the mounting economic evidence.”
The Bank of England increased the target for its bond purchases by 75 billion pounds to 275 billion pounds in October. While policy makers voted unanimously to maintain the target this month, some said more stimulus “might well become warranted in due course.”
Policy maker David Miles said yesterday that the “return to more normal rates of growth is something that is going to be a gradual process over the course of the next two years.”
The escalating crisis in the euro area, Britain’s biggest export market, may derail growth in the U.K. The Bank of England said yesterday that failure by euro-area nations to tackle the turmoil “could result in a much weaker external environment.”
Data in Germany today showed Europe’s largest economy grew 0.5 percent in the third quarter, boosted by consumer and company spending even as the debt crisis threatened to drag the euro area into recession.
Britain’s economy is already showing signs of stagnation. Gauges of manufacturing and services output fell in October, while an index of U.K. consumer confidence by Nationwide Building Society fell to a record low.
Aviva Plc, the U.K.’s second-biggest insurer by market value, said Nov. 15 it plans to cut about 380 jobs after the termination of a venture with Royal Bank of Scotland Group Plc.
In the third quarter, growth in industrial production and services was revised down by 0.1 percent from the previous estimate. Construction output was revised up by 0.4 percent.
--With assistance from Mark Evans, Scott Hamilton and Eddie Buckle in London. Editors: Fergal O’Brien, Andrew Atkinson
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