Latest UK GDP figures raise fears of looming recession

Economic growth in Britain in the third quarter of the year was driven entirely by manufacturers rebuilding their stocks of goods, and government spending, official figures reveal, underlining fears of a looming recession. In its latest revision of estimated GDP growth for the third quarter, the Office for National Statistics confirmed on Thursday that the economy expanded by 0.5%, but also gave more details of where that growth came from. Many manufacturers, including British-based Japanese carmakers such as Honda and Nissan, saw their inventories devastated by the supply-chain disruptions that followed the Japanese earthquake in March. The rebuilding of these stocks more than accounted for the 0.5% growth in the third quarter, according to the ONS – though it was offset by a drag from net trade and business investment. Government spending also contributed positively to growth. "While the headline was unchanged, the detail is very disappointing and supports our view that the UK is poised for a short and (hopefully) shallow recession," said David Tinsley, UK economist at BNP Paribas. Household expenditure was stagnant, the ONS reported, as consumers hit hard by rising prices and anaemic wage growth tightened their belts. "In broad terms, households continue to face difficult financial conditions, not least because inflation is over twice the rate of earnings growth," the ONS said in its commentary. "This, together with an uncertain labour market, is continuing to weigh down on household confidence. There is some evidence that households are taking steps to improve their balance sheets, by reducing debt and increasing savings." City analysts said the pattern of growth seen in the third quarter would be hard to repeat, making recession more likely. "Unless companies invest like mad, or we export like it is going out of fashion, the economy will struggle to grow in Q4," said Alan Clarke of Scotia Capital, who pointed out that recent business surveys suggest that "a negative reading is more likely". Howard Archer of IHS Global Insight said the 0.5% growth rate in the third quarter was "likely to be as good as it gets for some time to come". The ONS warned that "growth has tended to be concentrated in just a few components and so appears rather polarised," though it did report "considerable strength" from some sectors, including professional services. Separate figures also released on Thursday showed a 1.4% decline in business investment in the third quarter, though manufacturers increased their spending sharply.