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Within the details, the service sector made the biggest positive contribution growing by 1.3% following a decrease of 0.1% in the previous quarter. The production sector also posted an impressive 1.1% gain, although the construction sector continues to be the laggard, declining by 2.5%.
It is worth bearing in mind that there are some temporary factors that have artificially boosted the latest quarterly results that will drop out of the numbers next quarter. Firstly, the London 2012 Olympic Games will have provided a boost from ticket sales, extra tourism and additional investment coming to fruition. Secondly, the reversal of the extra bank holiday effect to celebrate Her Majesty’s Diamond Jubilee in the second quarter will have been felt.
Whether the momentum in growth will continue into the fourth quarter of the year is difficult to judge. More recently, the survey of manufacturers conducted by the Confederation of British Industry showed weakening activity heading into the fourth quarter. In addition, rising domestic energy prices and food price inflation is likely to renew the squeeze on household incomes. This is likely to hurt retailers in the run up to the crucial festive shopping period.
Overall, when considering the positive contribution from the temporary factors included in the latest number, underlying growth in the economy appears to be running at about +0.3% for the third quarter. That is not strong enough to shield the UK from the external risks that partly contributed to the latest recession. In our view, the UK remains at high risk of a ‘triple-dip’ recession in 2013 as domestic austerity continues and external demand is hampered by the eurozone sovereign debt crisis. In addition, there is great uncertainty about the implications of the US ‘fiscal cliff’ after the presidential elections in November. Nevertheless, today’s better-than-expected numbers are welcomed, and will lead us to revise up our forecast for growth for 2012 and 2013.
Disclaimer:
The views and opinions contained herein are those of Azad Zangana, European economist, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
For professional investors and advisers only.This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority. For your security, communications may be taped or monitored.
Source: ETFWorld – Schroders
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