Economic growth weaker than previously thought

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The Independent Online

The UK economy has not grown as strongly this year as previously thought, revised figures revealed today.

The Office for National Statistics (ONS) said gross domestic product (GDP) growth for each of the three quarters so far in 2010 has been downgraded by 0.1%.

The most recent quarter - between July and September - experienced growth of 0.7%, down from 0.8%, while the first and second quarters saw growth of 0.3% and 1.1% respectively, down from 0.4% and 1.2%.

Any hope that consumers will spend their way to economic recovery were dashed by new figures revealing a quarter-on-quarter increase in saving in the third quarter.

While the second and third quarter growth rates are still robust, any downward revisions will cast doubt on the strength of the economy as it moves into the final quarter of 2010 and new year, and whether it can withstand the Government's tough deficit-busting austerity measures.

Chancellor George Osborne unveiled an £81 billion package of spending cuts - including hundreds of thousands of job losses - earlier this year to tackle the creaking public finances.

Mr Osborne has pinned his hopes on the private sector picking up the expected slack in the economy and holding off a double-dip recession.

But some economists have raised concerns over the impact the cuts - and pending VAT hike - will have on growth in the final quarter and into 2011.

The ONS downgraded construction sector growth, as previously revealed, across the first three quarters of 2010.

In the third quarter, there were further downward revisions to production industries and business services and finance.

Household expenditure remained unchanged in the third quarter - showing a 0.3% rise - driven by spending on recreation and culture, food and non-alcoholic drinks. Government spending fell by 0.4%, the lowest level since the first quarter of 2009.

But there was some cheer provided in new business investment data.

The ONS said spending in the UK increased in the third quarter by 3.1% to £30.2 billion, when compared to the previous quarter. This represented an 8.9% increase on the third quarter of 2009.

The contraction in the economy in 2009 was also slightly less severe than previously thought, with the ONS upgrading the contraction in GDP for the year from 5% to 4.9%.

Howard Archer, chief UK and European economist at IHS Global Insight, said today's figures were "disappointing".

He said: "We expect growth to lose significant momentum over the coming months as fiscal tightening increasingly bites and adds to the pressures on already stretched consumers."

He added: "However, we do not think the slowdown in economic activity in 2011 will be sufficient to push the Bank of England into more quantitative easing, given persistently sticky, above-target consumer price inflation."