UK economic growth picks up to 0.5%

The UK economy grew by 0.5% in the third quarter of 2011, according to the Office for National Statistics (ONS).

The growth in the July-to-September period compared with a 0.1% expansion in gross domestic product (GDP) in the previous quarter.

But analysts said growth in the second quarter of the year had been dampened by one-off factors.

As a result, the third-quarter figures should not be interpreted as a big economic rebound, they added.

Output of the production sector rose 0.5% in the third quarter, compared with a 1.2% fall previously.

Service sector growth was up 0.7%, against a rise of 0.2% in the previous quarter.

The ONS emphasised that growth in the April-to-June period had been hindered by factors such as the extra bank holiday for the royal wedding.

James Knightley, at ING Financial Markets, said: "While the Q3 growth rate looks respectable, it is important to remember that this follows a Q2 figure depressed by having fewer working days because of the royal wedding and supply disruptions caused by the Japan earthquake/tsunami.

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Glossary in full "So for the economy to have only grown 0.5% in Q3 suggests the underlying picture remains weak," Mr Knightley said.

Howard Archer, economist at IHS Global Insight, added: "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."

However, Chancellor of the Exchequer George Osborne described the figures as "a positive step" and better than many people had forecast.

"Of course the British economy has got this difficult journey. It is a journey made more difficult by the kinds of things you see for example today in the markets because of the situation in the eurozone.

"But we are determined to finish this journey," Mr Osborne said.

Asked whether the government would stick to its austerity plans, Mr Osborne said: "We have to understand that this journey is the only route that will take us to prosperity and recovery."

The EEF engineering employers' group also drew some comfort from the ONS figures.

EEF chief executive Terry Scuoler said: "Despite the seemingly endless stream of gloomy news from Europe, the UK economy seems to have weathered the turbulent summer months.

"Today's modest figures are better than expected, but global challenges are growing, confidence is fragile and investment plans remain on hold."

But concerns about the UK economy were not helped by latest Markit Purchasing Managers' Index data, also released on Tuesday.

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There's an important debate now raging among economists about how much of the output lost since 2007 will ever be made up”
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Stephanie Flanders

Economics editor

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The index for manufacturing activity in October fell to 47.4 points, from 50.8 points in September. Any reading above 50 indicates expansion.

Rob Dobson, senior economist at Markit, said: "The UK manufacturing PMI fell sharply back into contraction territory in October.

"The most worrying aspect of the survey is the trend in new orders, which declined at the quickest pace since March 2009. Companies are facing tough conditions in both domestic and overseas markets, meaning that output is increasingly being sustained through the depletion of backlogs of work.

"A marked recovery in the replenishment rate of order books is needed to prevent the renewed manufacturing downturn becoming embedded," Mr Dobson said.

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