The ONS says output in the production industries increased by 0.4 per cent in the three months to September 30. And services output advanced 0.6 per cent, although output in construction fell by 0.2 per cent.
Some economists say that the growth is unsustainable and may be a precursor of a looming second recession. "Economic growth in the third quarter was driven by stock building and Government spending, neither of which is the basis for a sustained recovery," said Vicky Redwood, chief UK economist at Capital Economics.
And Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said “There is a good chance that we will see GDP fall in Q4 and the longer that the crisis in the eurozone remains unresolved, the greater the probability that we will suffer a full-blown recession in the UK.”
However, a Treasury spokesman said the UK economy was "not immune to the turbulence in the eurozone and its impact on British businesses" and that the Government was “using all levers to protect the UK economy.”
Earlier this week, the Bank of England’s Inflation Report warned that “the prospects for the UK economy have worsened” and suggested that growth will not exceed 1 per cent in either 2011 or 2012.
The report added that the growth outlook is “unusually uncertain” due to a lack of concrete action on the eurozone debt crisis. The Bank said the problems in the continent are the “single biggest risk” to the UK’s economic health.
The Bank has forecast that the economy will stagnate in the next three months of this year, and is likely to grow at between 0.7 and 0.8 per cent next year.
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Minutes from the November meeting of the Bank of England’s Monetary Policy Committee (MPC) show that it has been decided not to boost the current £275bn package of quantitative easing (QE) any further until at least February.
The minutes said that there was “little merit in fine tuning” and that it will take “ a further three months” to complete the latest £75bn installment, voted for in October.
Since inflation remains “materially above target”, it appears that the Bank is concentrating on bringing it down to nearer the 2 per cent target, which might take longer than the two years it has been suggesting.
The minutes said: “it remained a possibility that (inflation) would be slower to fall during 2012 than the pace implied by the committee’s central projections.”
Reaction to the minutes from analysts was that they were much as expected. Philip Shaw of Investec said: “No huge surprises from the minutes. In particular the unanimous votes to keep policy on hold was as expected, but also that the committee seemed to dismiss the idea of increasing the quantitative easing target and stepping up the pace of purchases.”
And Vicky Redwood of Capital Economics said: “The vote showed that the new, lower set of inflation forecasts did not persuade any members to vote to increase the QE programme straight away, with the Committee voting unanimously to leave policy unchanged. But given that the extra purchases announced in October are not yet finished, that was not a surprise.”
While the committee’s nine members voted unanimously to leave QE on hold for the time being and for interest rates to remain unchanged at 0.5 per cent, it was split on the likelihood of more QE after February. However, most analysts expect this to happen.
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According to a Bank of England survey of risk managers, fears that the UK financial system could be about to experience a shock, such as another bank failure or the eurozone breakup, are at their worst since the collapse of Lehman Brothers in 2008.
The Bank's twice-yearly Systemic Risk Survey, conducted between 20 September and 21 October, shows that 88 per cent of respondents thought the probability of a "high-impact event" in the near future had increased.
Around 18 per cent of those questioned said that the risk of such a shock was "very high", up from zero in the first half of the year. Around 37 per cent put the risk as "high", up from 15 per cent.
The risk of a sovereign default and a return to recession were cited as the gravest dangers to financial firms by 76 per cent of respondents. A danger that banks would be unable to fund themselves in the wholesale capital markets was cited by 57 per cent.
Around 38 per cent pointed to the risk of new regulations and taxes, while around 26 per cent cited the risk of a financial institution failing. Fewer respondents cited the risk of corporations failing, a collapse of house prices and inflation.
The Bank's newly-created Financial Policy Committee (FPC) regulator meets today to consider the safety of UK banks and financial firms and will scrutinise the survey’s findings. It is the first time that the survey, which began in July 2008, has been published separately.
Paul Tucker, Deputy Governor of the Bank and a member of the FPC said: "We hope that the inaugural publication of detailed survey results will be of wide interest, shedding greater light on market participants' current views of confidence and risk.”
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On the first day of the annual CBI conference yesterday, Prime Minister David Cameron addressed the audience of business leaders and said that the Government has a strategy for stimulating economic growth but that its first priority was tackling the UK deficit.
The strategy for growth will include measures to boost the house building industry, expand super-fast broadband, build new power stations and increase lending to businesses.
However, Mr Cameron insisted that dealing with the deficit must be “line one clause one, part one” of the plan for economic recovery. He said” I am absolutely clear about the right answer for the UK economy.”
Mr Cameron told the audience that the previous model of debt-driven consumer boom was “broken” and that the strategy should be for investment, more exports and a broader base to an economic future.
Asked during a Q&A session what the Government was going to do to deliver short-term growth, Mr Cameron sad “I don’t think there is one silver bullet that will make British business say ‘this is it’. I think there is a clear agenda across all those agendas.”
The Prime Minister also indicated that Chancellor George Osborne would be unveiling a new credit easing scheme in next week’s Autumn Statement, that would “pump billions” into reduced lending costs to SMEs and that the Government would use its huge purchasing power to strengthen the SME sector.
Reaction from the delegates to Mr Cameron’s speech was generally positive. Sir David Arculus, Chairman of small business bank Adermore, agreed that the deficit reduction message had to remain central and said “I don’t think that the toughness of the deficit reduction has ... hit home fully yet.”
Kanat Emirolgu, Managing Director of British Gas Business said that the Government should put more pressure on Europe to reduce regulatory barriers to the sales of services on the Continent.
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The Financial Services Authority (FSA) has cost businesses in the City around £1.4bn in the last year, as more than 18 separate compliancy measures have been introduced since last October, according to a recent report.
Apparently one-off implementation costs for the new laws regarding financial services range from between £253m and £323m, and among the measures and levies imposed on the financial sector are rules on capital requirements, data collection, consumer complaints and financial crime.
Daniel Pinto, Chairman of London-based investment firm Stanhope Capital and director at the New City Initiative, which represents independent firms, said the "excessive" regulation would stifle small and medium enterprises, which were paying the price for the failure of big banks. "
Smaller firms are not equipped to handle this increasing cost of compliance. For them these costs can be the difference between being profitable or not," he said.
Mr Pinto said smaller firms spent about 5 per cent of their revenues on complying with regulation and the extra FSA laws created a "systemic risk" that the SME sector would "shrink" as it struggles to cope with the legal burden.
And Michael Wade, Executive Chairman of Besso, has criticised the FSA’s draconian approach to enforcing the Bribery Act 2010, saying that “London will lose billions of pounds of premium. It will go into the markets that are less regulated.”
He added: “It’s a no lose situation for the FSA and a no win situation for the regulated and that is not fair.”
The figures for the cost of regulation have come out in the same week that Business Secretary Vince Cable is preparing to outline plans to cut business red tape at an employers’ event on Wednesday. The Government is apparently concerned about feedback from companies complaining of “regulation overload.”
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