Economic growth tops hopes but experts say risks remain

BRITAIN's economy grew faster than expected in the summer and early autumn, prompting hopes yesterday that the green shoots of recovery were emerging from last year's recession.

But analysts tempered suggestions that the UK was through the worst by warning that public- sector cuts and the continuing credit crunch would hold the economy back.

New figures from the Office for National Statistics showed that gross domestic product increased by 0.8 per cent between July and September - less than the 1.2 per cent surge in the previous three months, but double the growth predicted by most economists.

Chancellor George Osborne received a double boost as ratings agency Standard & Poor's officially removed Britain from the sick list, revising its outlook on the UK economy from negative to stable.

Mr Osborne claimed the two announcements amounted to a "vote of confidence" in UK plc - only for City analysts to warn that Britain was nowhere near out of the woods.

They said the growth figures yesterday were a one-off, boosted by a construction sector that is dealing with a backlog of work postponed by bad weather at the start of the year.

The new figures mean that, over the past six months, growth has hit 2 per cent, the fastest pace of expansion seen over two consecutive quarters for ten years. Year-on-year growth - now standing at 2.8 per cent - has recovered to levels seen before the recession.

But City experts warned that Britain would be unable to keep that pace going.

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Howard Archer, chief economist at IHS Global Insight, said: "While the data suggests that the economy had more momentum than thought in the third quarter, it does not fundamentally change our view that growth will be markedly slower going forward as economic activity is pressurised by major fiscal tightening increasingly kicking in, persistently tight credit conditions, slower global growth and significant constraints on consumers."

The better-than-expected figures may now ease pressure on the Bank of England to back a further round of "printing money" - or quantitative easing - in the hope of freeing up credit, although some analysts still expect such a decision next spring.

However, other senior figures said that with growth figures up, monetary policy needed to be tightened. Andrew Sentance, an external member of the Bank of England's monetary policy committee, said: "I am in favour of gradually moving interest rates up from their very low level, which I think can be done without disrupting business or consumer confidence."

Yesterday the news on growth saw the pound surge against the dollar and pulling back from recent lows against the euro.