Economy expands 0.8% in third quarter, damps QE expectations
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The British economy grew by 0.8% in the third quarter, easing from the previous quarter’s pace but defying forecasts for a sharper slowdown and dampening expectations the Bank of England will soon implement a further round of monetary easing.
The Office for National Statistics said third-quarter gross domestic product expanded by 0.8% compared to the second quarter. Compared to the third quarter of last year, GDP grew 2.8%. GDP had expanded at a 1.2% quarterly pace in the second quarter.
Economists surveyed by Dow Jones Newswires had produced an average estimate of 0.4% quarterly growth and a 2.4% year-on-year rise. Year-on-year growth in the third quarter was the strongest since the third quarter of 2007.
The British pound extended a gain versus the U.S. dollar (GBPUSD 1.5847, +0.0114, +0.7246%) to trade at $1.5849 in recent action, a gain of 1%. The euro fell 0.7% versus sterling to change hands at 88.03 pence.
The ONS said that underlying growth in the third quarter was “broadly similar” to the previous quarter after allowing for a weather-related boost to the second-quarter figures.
“This is the second major GDP growth surprise in a row and suggests that the U.K. economy is more resilient than many had feared,” said James Knightley, an economist at ING Bank.
The British government, which last week detailed a sweeping austerity plan that will cut spending by more than 80 billion pounds ($126 billion) over four years, will likely take the data as a sign that the private sector can absorb public-sector job cuts, Knightley said, while also pushing back prospects for additional quantitative easing by the Bank of England.
But the economist said that softening consumer confidence, hiring-intentions surveys and weakening housing activity warranted caution on the economic outlook.
Howard Archer, chief U.K. economist at IHS Global Insight, said growth remains likely to slow to a 0.4% quarterly rate in the fourth quarter as fiscal tightening kicks in and the economy feels the pinch of tight credit conditions, slower global growth and constraints on consumers.
The data is likely to put talk of additional quantitative easing “on the back burner,” although the prospect of additional asset purchases remains a possibility if growth slows substantially over coming months, Archer said.
Adam Posen, a member of the central bank’s Monetary Policy Committee, cast a lone vote in October to expand the asset purchase program, which has been on pause since February.
