Gordon Brown was handed an early Christmas present yesterday thanks to an unexpected revision of the latest figures that put him on track to meet his growth forecasts. The economy grew 0.8 per cent in the third quarter, the fastest growth for a year and a rate not surpassed since the peak of the last boom in 2000.
The Office for National Statistics also revised up the annual growth measure to 2.1 per cent, exactly in line with the forecast in this month's pre-Budget report. But the news was tarnished by separate figures showing a widening current account deficit, tumbling productivity and a deterioration in the public finances.
The ONS said the revision was mostly due to higher estimates for health and social work, business activities, insurance services and wholesaling. The fall in manufacturing output was also smaller than first thought. The improvements more than offset downward revisions to business investment and construction activity.
The news boosted optimism in the financial markets, where the FTSE 100 share index surged to a fresh 16-month high while the pound rose against the dollar and the euro.
Philip Shaw, the chief economist at Investec, said: "The UK economy is enjoying a recovery and the pace of domestic demand is running unambiguously above trend."
The Treasury was not commenting on the figures but is bound to be pleased the Chancellor is on track to achieve his Budget forecast of 2 to 2.5 per cent growth, which was widely criticised at the time.
Mr Brown will need to see this pace of growth maintained for the next two years to hit his ambitious growth and tax revenue forecasts. But some analysts said the breakdown on the national accounts contained some worrying signals for the months ahead. Household debt hit a record high, climbing to 133 per cent of annual disposable income. Consumer spending showed no sign of slowing, being revised up to 0.9 per cent growth from 0.7 per cent.
John Butler at HSBC said: "The apparent recovery is still potentially based on fragile foundations."
On the other hand the savings ratio - the proportion of household wealth being saved - rose along with growth in consumers' total assets.
Alan Castle, an economist at Lehman Brothers, said: "Despite widespread concern over rising debt, consumers do not appear to be spending beyond their means."
The picture contrasted with the message from the Continent. French consumer spending suffered its biggest drop in seven years in November, while German retail groups said Christmas sales looked set to fall below last year's depressed level. However, official UK figures also showed the current account deficit swelled to £8.1bn - the largest shortfall in three years - from a revised £7.8bn in the previous quarter.
The ONS said this was driven by a larger deficit in trade in goods, which saw a shortfall of £11.7bn, and a fall in the surplus on investment income.
Simon Rubinsohn, the chief economist at the fund manager Gerrard, said the deficit was on track to rival the record shortfall at the peak of the boom in 1989.
The ONS also revised the public finance figures, which showed that the deficit so far in the economic cycle was £800m higher than first thought. This means Mr Brown has even less margin for error in meeting his "golden rule" of balancing the books over the cycle.
The Government suffered a further blow from the latest productivity figures, which showed a further deterioration over the third quarter.
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