Instant view - Q3 GDP growth confirmed at 0.5 percent

LONDON (Reuters) - The economy grew 0.5 percent in the third quarter of this year, in line with previous estimates, but the expansion was largely driven by an increase in

firms' inventories, official data showed on Thursday.

The figures in part mark a rebound from unusually weak growth in the second quarter, due to disruption from extra public holidays to mark a royal wedding, as well as from Japan' s tsunami, which hit supply chains.

The Bank of England has forecast that the economy will stagnate in the last three months of this year, and grow at an annual rate of just 0.7-0.8 percent through most of 2012.

KEY FIGURES FOR SECOND ESTIMATE OF Q3 GDP

(previous estimates in brackets)

Q3 2011 Q2 2011 Q3 FORECAST

% QQ 0.5 (0.5) 0.1 (0.1) 0.5

% YY 0.5 (0.5) 0.6 (0.6) 0.5

KEY POINTS

- Biggest qq rise in GDP since Q3 2010

- Biggest qq rise in industrial output since Q2 2010

- First quarter household consumption has not fallen since Q2 2010

ANALYSTS VIEWS:

BRIAN HILLIARD, SOCIETE GENERALE:

"The thing that stands out is that consumption has stopped falling after two very large declines in Q1 and Q2, it was actually flat in Q3. It's impressive given that inflation was rising during that period very strongly.

"The investment numbers were soft, business investment in particular... So, hardly something to get too excited about but just a slight hint that the consumer might be over the worst. The consumption picture for 2011 as a whole is going to show it to be a very bad year, maybe down 1.5 percent, but next year should be a little less bad as inflation falls back.

"Short-term indicators are for very, very weak Q4 growth... So growth of below 1 percent for 2011 as a whole and even less next year.

"The worrying thing in these numbers is that exports are down 1 percent and we know that for any sustained improvement in growth we need some better contribution from net exports, and that's not what we got in these data."

ALAN CLARKE, SCOTIA CAPITAL

"All of the buoyancy came from stock building and government spending, which is hardly the foundations for an enduring recovery. The sectors that you would want to be adding to growth - exports, consumption, investment - were flat on their backs.

"I'm still convinced that we go into recession. I think Q4 will look much worse, zero (growth) is the best we can hope for."

ROSS WALKER, RBS:

"Unrevised so as expected. I think the new information is obviously the expenditure components. You'd say they were a little bit disappointing at the margin in terms of the breakdown.

"Flat household consumption is not a surprise but the fall in investment is a little bit disappointing. I mean it did bounce back a little in Q2, but that had followed a couple of negative outturns.

"So we thought we'd see some growth there still, but that hasn't come about, and (there is) the fall in exports.

"So the two areas that are expected to be the main drivers of recovery didn't do a great deal in Q3. It doesn't fundamentally change the outlook, but at the margin just gives the numbers a slightly disappointing hue."

PHILIP SHAW, INVESTEC:

"The release tells us that consumer spending has failed to rise since Q2 of last year which says something about the rebalancing of the economy."

"A rather unnerving feature is a rise in inventories over the period of 2.9 billion which shows the economy is vulnerable to a sharp slowdown in stock building or even destocking in the quarters ahead."

"It certainly keeps the chancellor under huge pressure to unveil some concrete proposals on growth next week. It also does nothing to shake our belief that the BoE will do an additional 100 billion of QE over 2012."