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UK economy said to have expanded 0.7% between August and October: NIESR

H.S. Borji
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UK gross domestic product grew at a steady rate in three months through October, as the economy continued to strengthen after regaining its pre-recession levels in the first half of the year.

The UK economy accelerated 0.7 percent in the three months through October, following an identical increase in the July to September period, the National Institute of Economic and Social Research reported today.

The UK economy expanded 0.7 percent in the third quarter, down from the 0.9 percent expansion recorded in the April to June period, the Office for National Statistics reported last month. Year-on-year, this translated into a gain of 3 percent.

The moderation in economic growth has raised concerns about the UK recovery, which appears to be slowing in the second half of the year. Some analysts are worried that the UK may get sucked into the Eurozone’s spiral of weak growth and non-existent inflation. The currency region is expected to rebound only modestly in the third quarter after stagnating in the second quarter.

Eurozone gross domestic product unexpectedly flat-lined in the second quarter after Germany posted declines and Italy slipped back into recession.

On Thursday the Office for National Statistics said UK manufacturing production grew 0.4 percent in September. That was twice the pace of the previous month. Year-on-year, manufacturing production was up 2.9 percent.

Industrial production – a broad measure of factory output that includes energy production – advanced 0.6 percent in September after declining in August. Year-on-year, industrial production was up 1.6 percent, official data showed.

The manufacturing industry accelerated in October, as new business levels expanded sharply, Markit Group reported earlier this week.

Markit’s gauge of UK manufacturing activity rose to 53.2 in October, a three-month high, rebounding from September’s 17-month low of 51.5. The gains were spurred by an uptick in domestic demand, which offset declines in new export orders.

“Although the pace of expansion remains below that seen at the start of the year, suggesting the sector will remain only a modest contributor to broader economic growth, it is positive to see the sector break its recent sequence of slower growth,” said Markit senior economist Rob Dobson in a statement. “Continued growth of employment, especially at [small- and medium-sized enterprises], suggests that the recovery in the labour market is holding sway.”

The NIESR said the UK economy is projected to grow 3 percent this year and 2.5 percent in 2015, slightly lower than the International Monetary Fund’s estimates of 3.2 percent and 2.7 percent, respectively. Although the rate of growth has slowed from earlier this year, spare capacity will continue to be absorbed. The NIESR now believes the Bank of England will raise interest rates in June of next year.

As expected, the BOE made no changes to monetary policy at today’s rate meetings.

The BOE was believed to be considering a rate hike earlier than the June 2015 timetable suggested by the NIESR. However, disappointing earnings growth and weakness in the Eurozone are placing unforeseen pressures on the UK economy.

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