BRITAIN’S economy has expanded at its fastest pace in three years, adding to George Osborne’s hopes for a sustained upturn, but economists believe growth could ease back as the squeeze on consumer spending continues.
The Chancellor said the figures showed the country was “on the path to prosperity”, although John Cridland, director-general of the CBI, warned that more work needed to be done to rebalance the economy, which remains dependent on the services sector.
According to official figures from the Office for National Statistics, GDP growth accelerated to 0.8 per cent in the third quarter, up from 0.7 per cent in the previous three-month period, and the highest increase since the second quarter of 2010.
Growth was driven by a 0.7 per cent increase for the powerhouse services sector, whose output accounts for more than three-quarters of the economy and is now slightly higher than its pre-recession peak of early 2008.
However, economists at Barclays Research said a 0.5 per cent rise for the production sector was “somewhat disappointing” and highlighted the challenges faced by the UK’s manufacturers.
There was better news for the construction sector, which suffered badly during the financial crisis, but grew by 2.5 per cent in the three months to September as government stimulus schemes contributed to a rise in housebuilding activity.
Samuel Tombs, of Capital Economics, said continued public spending cuts and slow wages growth meant the economy was unlikely to gather much more pace, “but with employment growing, confidence returning and productivity still well below its potential, it seems unlikely that the recovery will fade significantly either”.
Shadow chancellor Ed Balls said: “After three damaging years of flatlining, it’s both welcome and long overdue that our economy is growing again. But for millions of people across the country still seeing prices rising faster than their wages, this is no recovery at all.”
Joe Grice, chief economist at the ONS, said quarterly growth could have reached 0.9 per cent had it not been for weak gas and electricity output, which may reflect a drop in demand caused by this year’s heatwave.
With ScottishPower announcing rise in fuel bills on Thursday, four of the “big six” energy firms have now hiked their tariffs, adding further pressure to consumers who are seeing their wages rise more slowly than inflation.
Higher utility bills are also hitting employers, according to Andy Willox, Scottish policy convenor at the Federation of Small Businesses, who urged politicians to “remember that small enterprise will be critical to creating jobs and driving growth”.
The economy has now expanded for three consecutive quarters, but is still about 2.5 per cent smaller than before the peak seen in the first quarter of 2008.
Howard Archer, chief UK and European economist at IHS Global Insight, predicted that growth would ease back to 0.6 per cent in the fourth quarter, reflecting the squeeze on consumer spending, before settling into a quarterly growth range of between 0.5 and 0.6 per cent next year.
He added: “As a result, we forecast GDP growth to come in at 1.4 per cent overall in 2013, rising to 2.4 per cent in 2014.”