Growth defies experts to hit Government target

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The Independent Online

The government will use next month's Pre-Budget Report to boast it has hit its controversial growth forecast after figures showed the economy accelerated over the summer.

The government will use next month's Pre-Budget Report to boast it has hit its controversial growth forecast after figures showed the economy accelerated over the summer.

The economy defied the doom-merchants to post its strongest rate of expansion since last autumn in the three months to September. National Statistics said GDP growth was 0.6 per cent, higher than the City had expected and faster than the 0.4 per cent in the second quarter.

This left annual growth at 2.2 per cent and economists said even if the fourth quarter were to hit zero the figure for the year would be 2.3 per cent. This would put it within the forecast range in the March Budget of 2.25 to 2.75 per cent, which at the time was dismissed as wildly optimistic.

The PBR usually contains an exact forecast for growth in the current year, which is now almost certain to be 2.25 per cent.

Andrew Smith, the chief secretary to the Treasury, said he was "cautiously optimistic" about the prospects for growth this year.

"The Chancellor has consistently stated that no country can insulate itself from the ups and downs of the world economy," he said. "But because of the tough decisions we have taken on fiscal and monetary policy we are better placed than before to weather the economic storms."

The National Institute of Economic and Social Research, which has forecast growth of 2.3 per cent, said the figures confirmed its optimistic prediction. Martin Weale, its director, said: "Gordon Brown faces no immediate budgetary difficulties and rapid growth in public spending can continue at least to the end of the current Parliament."

The economy was driven by strong growth in sales on the high street and in car showrooms, which enjoyed their best quarter for more than five years. But despite the strong headline figure, economists said there were enough signs of weakness to encourage the Bank of England to cut interest rates next week.

The breakdown showed the industrial sector contracted for the fourth quarter in a row, while services sector growth slowed to 0.8 from 0.9 per cent.

Within retail and motor sales, hotels and restaurants grew 1.3 per cent, the highest since the last consumer boom in 1996. Agriculture and construction also outperformed expectations.

But it was offset by falls in transport including airlines and a slowdown in communication, banking and business services.

Michael Hume, UK economist at Lehman Brothers, said the data had "clouded" the outlook for interest rates but stuck with his forecast for a quarter-point cut.

"Indeed with evidence emerging, in the US particularly, that the global economy is weakening sharply, we have decided to add another cut in rates, [which will] bottom out at 4 per cent in January," he said.

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