Instant view - Q3 GDP growth revised down unexpectedly

LONDON (Reuters) - The economy grew less quickly than previously thought in the third quarter, and growth in the second quarter was also revised down, official data showed on Wednesday.

The figures suggest the recovery is less robust than some hoped and will reinforce fears of a sharp slowdown early next year when public spending cuts increasingly start to bite.

ANALYST COMMENTS

VICKY REDWOOD, CAPITAL ECONOMICS

"The raft of UK data do little to improve the prospects for the economy next year. For a start, GDP growth in the last two quarters was nudged down a touch, with Q3's expansion revised down to 0.7 percent. Meanwhile, the detail contained both encouraging and worrying aspects.

"On the positive side, the breakdown of domestic demand now looks more favourable, with a weaker contribution from government spending offset by a much stronger one from investment. And a strong rise in household income meant that the household saving rate rose from 3.5 percent to a healthier 5 percent. But on the downside, stockbuilding made a bigger contribution than previously thought, while the net trade boost in Q3 has been revised away. And the overall current account widened from 1.4 percent to 2.6 percent of GDP.

"The upshot is that a continued strong recovery seems far from assured -- we expect GDP growth of just 1.5 percent next year."

GEORGE BUCKLEY, DEUTSCHE BANK

"GDP is not that much different from what it was, it's not a good report to be honest, because it's been revised down, secondly, the contribution from exports which was positive is now negative.

"I don't think it's all bad news though, even though that's what people will focus on. There is some good news. First of all the saving ratio has risen, which is encouraging. Secondly, real incomes have bounced back by one percent and also corporate profits look relatively decent, so all of those things are quite good.

"Also I think it's worth remembering that the initial forecast for GDP ... was 0.4, so this doesn't derail recovery, it's still pretty decent."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"While the modest downward revision to GDP growth in both the second and third quarters is disappointing, it does not fundamentally change the picture that economic activity held up well in the third quarter after robust growth in the second quarter.

"We expect growth to lose significant momentum over the coming months as fiscal tightening increasingly bites and adds to the pressures on already stretched consumers. Furthermore, the rebuilding of inventories may nearly have run its course now.

"We expect markedly slower growth over the coming months to cause the Bank of England to keep interest rates down at 0.50% until at least late-2011 and very possibly into 2012. However, we do not think the slowdown in economic activity in 2011 will be sufficient to push the Bank of England into more Quantitative Easing given persistently sticky, above-target consumer price inflation."

ROSS WALKER, RBS

"It's a bit of a surprise we got the downard revision to 0.7 percent.

"The savings ratio had fallen quite sharply in recent months, so I view the rebound in Q3 as a positive. Households need to be saving a bit more but you don't want that to come too rapidly. That modest pick-up, although not good for immediate consumption growth, is beneficial from a medium-term perspective.

"The recovery in income has meant that we could get some consumption growth and a boost to savings. The household income numbers looked artificially weak in Q2 and there seems to be a bit of a normalisation in Q3."

PHILIP SHAW, INVESTEC

"We're not surprised that there have been some downward revisions to both Q3 and Q2. It doesn't change the big picture that the economy was doing pretty well over the middle of the year.

"Clearly there has been a slow down between Q3 and Q2, but no one was really expecting Q2 level of growth to persist, and indeed we're likely to see a further softening of GDP growth in the fourth quarter, but taken over the year as a whole, GDP growth is still, will almost certainly be above most expectations at the start of this year."