LONDON (Reuters) - The economy grew 0.5 percent in the third quarter of this year, official data confirmed on Wednesday, in what is likely to be the last piece of moderately upbeat news for some time as the country veers perilously close to recession.
Growth was the best in any quarter for a year, but was driven by factors that are unlikely to withstand the deepening euro zone debt crisis and ongoing government fiscal contraction.
A sharp increase in firms’ inventories and government spending drove growth, with a rebound from disruption in the second quarter, when there was a public holiday to mark a royal wedding and Japan’s tsunami hit supply chains, also helping.
“The detail reveals some very interesting and worrying trends which strike a significant blow to short-term growth prospects,” said Andrew Goodwin, an economic advisor to accountants Ernst & Young.
“Without stock building and government spending the economy would have contracted in Q3 (and) there is a good chance that we will see GDP fall in Q4,” he added.
Bank of England policymaker Ben Broadbent said there was a 50 percent chance that Britain’s economy would contract in the fourth quarter, in an interview broadcast on CNBC. Last week the Bank forecast an annual pace of growth of just 0.7-0.8 percent for most of 2012.
Slow growth and unemployment at a 17-year high are increasing pressure on Chancellor George Osborne to announce measures to boost the economy in his autumn statement next week, but he is hamstrung by his tough deficit reduction targets.
“The UK economy is not immune to the turbulence in the euro zone and its impact on British businesses. The government is using all levers to protect the UK economy and make sure that it remains a relative safe haven in the sovereign debt storm,” a finance ministry spokesman said after the data.
The figures from the Office for National Statistics confirm its estimate at the start of the month that between July and September Britain’s economy grew by 0.5 percent from the previous quarter, and by 0.5 percent from the third quarter of 2010.
Government spending rose by 0.9 percent on the quarter in real terms, and firms’ inventories rose by 2.9 billion pounds, the biggest rise for a year and one that added 0.7 percentage points to quarterly growth.
Household spending was flat, the first time it has not fallen for over a year, while Britain’s trade deficit knocked 0.4 percentage points off the rate of growth, as exports continue to fail to meet official hopes that they will lead Britain into a solid recovery.
The Confederation of British Industry’s monthly industrial trends survey showed British factory orders fell at their fastest pace in over a year in November due to a slump in euro zone export demand.
“With heightened uncertainty over global prospects and business confidence falling sharply, it is very possible that factories will see production slowing further in the near term,” said CBI chief economic advisor Ian McCafferty.
Thursday also brought more grim news from the British high street.
Arcadia, the Topshop-to-Bhs retail group owned by billionaire Philip Green, posted a 38 percent fall in annual profit and said it saw a further deterioration in recent trading. Meanwhile Dixons, the UK’s largest electrical goods retailer, reported wider first-half losses.
Green said recent sales had been hit by mild weather deterring winter clothing purchases, telling Reuters there would be no let-up to discounting by retailers in the run-up to Christmas.
Dixons said it was taking market share from rivals who were faring even worse.
Last month the Bank of England restarted its quantitative easing programme, authorising another 75 billion pounds of gilt purchases, and most economists predict it will conduct another round when the first purchases are complete in February.
“We expect the Bank of England to enact a further 50 billion pounds of quantitative easing in both the first and second quarters of 2012, taking the total up to 375 billion pounds, and it could very well go higher still,” said IHS Global Insight economist Howard Archer.
Reporting by David Milliken and Peter Griffiths; Editing by Catherine Evans