Economy grows, but manufacturing slips

The economy continued to grow strongly between July and September, according to the latest estimates from the UK's leading macro-economic think-tank.

GDP expanded by 0.8 per cent in the third quarter, the National Institute of Economic and Social Research (NIESR) said. If that is confirmed by official figures later this month, it would represent the economy's strongest quarterly growth since the Coalition took office in 2010.

But the NIESR estimate is still weaker than the 1 per cent quarterly growth suggested by recent industry surveys. That represents a slight decline on the 0.9 per cent expansion it estimated for the three months to August.

Enthusiasm over the UK's recovery was further dampened yesterday by news that manufacturers stumbled in August with a fall in production. The 1.2 per cent month-on-month decline contrasted with City forecasts of a modest increase. The data showed industrial output down 1.1 per cent. Industry surveys, by contrast, had pointed to the fastest pace of growth in the sector in nearly two decades last month.

The news caught currency markets off guard, sending the pound down around 0.7 per cent against the dollar. Trade figures also disappointed the markets yesterday, as the UK's goods deficit with the rest of the world edged down to £9.6bn. Economists had anticipated a bigger decline.

Howard Archer of IHS Global Insight called the figures a "reality check" that raised the risk net trade held back the wider economy between July and September.

"It does put a dent into hopes that the economy may have grown by as much as 1 per cent in the third quarter," he added.

That was echoed by Lena Komileva, managing director of G+ Economics, who said: "The plunge in industrial production has put a major question mark over the UK economic recovery."

The Bank of England's latest credit-conditions survey said lenders expect demand for loans from businesses of all sizes to pick up in the final quarter of the year. But smaller companies are still missing out on cheaper loans as large and medium companies enjoy "significant reductions" in lending spreads compared with "slight" falls for small businesses.

NIESR reckons Britain's GDP remains 2.5 per cent below its peak.

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