Joe Murphy and Jonathan Prynn
1 Nov 2011

http://www.thisislondon.co.uk/standard/article-24004669-economy-in-grave-danger-despite-rise-in-output.do

Output in Britain rose by half a per cent in the third quarter of this year – better than the City expected but dismally short of what is needed to meet the Chancellor’s growth targets.

Experts warned that the economy is stagnating and in “grave danger” of a second recession. “There’s certainly a very grave danger that we could contract in the fourth quarter,” said Howard Archer, chief economist with Global Insight.

Today’s figures from the Office for National Statistics were a modest improvement from the 0.1 per cent growth of the previous quarter, ending in June.

George Osborne welcomed it but he warned there was a “difficult journey” ahead. Experts were more gloomy. Jonathan Loynes, chief European economist at forecaster Capital Economics, said: “The GDP figures are a bit better than expected but they do not alter our view that the economy is likely to fall back into recession over the coming quarters.”

The surprise Greek decision to hold a referendum on the austerity package caused instant falls in shares this morning, which fuelled doubts about the eurozone rescue package.

By late morning the FTSE 100 was down 154.4 points to 5389.82, a fall of 2.8 per cent. This week the index of leading shares has already shed 320 points, wiping £76 billion from the value of Britain’s biggest companies. The French and German stock markets were both down by more than four per cent. And there was more bad news as a key indicator showed manufacturing output falling at its fastest rate since the depths of the recession in March 2009.

The latest Purchasing Managers’ Index data, released today, suggested that manufacturing activity last month fell to 47.4 points, from 50.8 points in September. That suggests a contraction that will only show up in the next growth figures in January.

James Knightley, at ING Financial Markets, said the growth rate would have had to be much bigger to suggest a real recovery was under way, saying: “For the economy to have only grown 0.5 per cent suggests the underlying picture remains weak.”

Part of the headline improvement was a “bounce back” from the growth-depressing effects of the royal wedding bank holiday and the Japanese tsunami.

Output of the production sector rose half a point, compared with a 1.2 per cent fall previously. Service sector growth was up 0.7 per cent, from 0.2 per cent.

Mr Osborne hailed the figures as “a positive step” and better than most experts had expected. He added: “Of course the British economy has got this difficult journey. It is a journey made more difficult by the kinds of things you see, for example today, in the markets because of the situation in the eurozone. But we are determined to finish this journey.”

His Labour shadow, Ed Balls, predicted: “The Chancellor will now have to downgrade his growth forecasts for a fourth time.”

Adam Clifford, a strategist at William Albert Securities, said: “This better- than-expected figure will provide a flicker of hope but is likely to be short-lived. In the short to medium- term we remain bearish and believe a double-dip is a strong possibility next year.”

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