Growth down as recovery falters

George Osborne
George Osborne
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Britain’s economic recovery has been running out of steam as shock revisions to official figures showed growth was weaker than previously thought for much of 2015.

The Office for National Statistics (ONS) revealed that growth was 0.4 per cent in the three months to the end of September, down from the initial estimate of 0.5 per cent.

Growth was also revised down to 0.5 per cent for the quarter to the end of June, from the 0.7 per cent previously recorded.

It comes as the latest blow to the economy after dire public finances figures on Tuesday revealed worse-than-expected borrowing in November, up by £1.3 billion year-on-year to £14.2 billion.

The growth revisions were also unexpected, with most economists forecasting growth readings to remain unchanged.

Britain’s economy has now expanded for 11 quarters in a row, but the latest revisions mean expansion in 2015 has been muted, with the year starting with a slowdown to 0.4 per cent in the first quarter, edging up to 0.5 per cent in the second quarter and then dropping back to 0.4 per cent in the third.

It means there is little pressure on the Bank of England to raise interest rates from the rock-bottom low of 0.5 per cent, despite its US counterpart raising rates in America last week for the first time in nearly a decade.

The Bank has previously said it expects growth to edge higher to 0.6 per cent in the final three months of 2015, but the latest revisions mean expansion for the whole of 2015 is likely to have slowed to around 2.2 per cent from nearly 3 per cent in 2014.

Kallum Pickering, senior UK economist at Berenberg, said the revisions have left the economy ending the year “on a very sour note”.

“These changes significantly alter the quarterly growth story for 2015. Rather than a weak first quarter, a strong second quarter and an OK third quarter, disappointingly, data now show that the economy has been growing below trend all year,” he added.

But the Treasury insisted the UK’s economic performance remained “strong”.

A spokesman said: “The UK was the fastest growing economy in the G7 last year, we’re leading the pack with the US this year, we have a record high employment rate and the deficit is down.

“Today’s figures highlight that risks remain - that’s why we should continue working through our plan to build an economy that delivers security for working people.”

Growth on an annual basis was also revised down in the third quarter, to 2.1 per cent from the 2.3 per cent previous reading.

The ONS data showed that growth was hit by a weaker performance from the dominant services sector, which accounts for around three-quarters of gross domestic product (GDP).

Services output grew by 0.6 per cent in the third quarter, against 0.7 per cent initially estimated, according to the ONS.

This came as manufacturing output shrank by 0.4 per cent and construction contracted by 1.9 per cent.

Net trade was also a drag on Britain’s economy, knocking a percentage point off growth in the third quarter.

The revised figures mean the UK economy has grown by 6.1 per cent above its pre-crisis peak, compared with an earlier estimate of 6.4 per cent.

Data also out from the ONS showed that household disposable income rose by 0.5 per cent quarter-on-quarter in the three months to the end of September, but Britons are saving less.