Economy grows at fastest rate for three years

Services were up by 0.7 per cent in July-September, construction grew by 2.5 per cent and manufacturing saw a 0.9 per cent rise. Chancellor George Osborne said on Twitter: “This shows that Britain’s hard work is paying off & the country is on the path to prosperity.”

Economists had predicted gross domestic product (GDP) for the three months to the end of September would increase by at least 0.8 per cent, after climbing 0.7 per cent in the previous period and 0.4 per cent before that.

Overall GDP was 1.5 per cent ahead of the same period last year, a strong comparison with a time when the economy was boosted by the Olympics and Paralympics.

Catching up

The year-to-year rise is higher than the 1.3 per cent improvement at the end of 2013’s second quarter. But the economy remains 2.5 per cent off its pre-recession peak at the start of 2008.

Construction was boosted by new work on private housing and private commercial building as well as domestic home repair and maintenance. Housebuilders have been buoyed by the government’s help to buy scheme, which recently launched a new phase offering mortgage guarantees.
But construction still remains 12.5 per cent off its pre-crisis peak.

Production grew by 0.5 per cent, though this remains 12.8 per cent off its 2008 level, while within this manufacturing improved 0.9 per cent in the third quarter. It is 8.9 per cent off the level five years ago.

The powerhouse services sector, which represents three-quarters of economic output, grew by 0.7 per cent and is now 0.6 per cent above its pre-crisis peak. The largest contributions here came from business services and finance, followed by distribution, hotels and restaurants.

Surging stamp duty revenues have also helped public borrowing come in £1bn lower in September than last year. But slowdowns in construction and manufacturing during August suggested that some parts of the economy were still struggling.

Retail sales have had a rollercoaster ride, soaring amid the July heatwave, before slumping again in August, then recovering in September.

There was more good news for Mr Osborne when the International Monetary Fund sharply upgraded its UK growth forecast for 2013 to 1.4 per cent.

‘Turning a corner’

Prime Minister David Cameron said the economy “continues to turn a corner”, hailing improvements in employment and other figures showing there are a record number of businesses trading in the UK.

But shadow chancellor Ed Balls said “millions of people across the country (were) still seeing prices rising faster than their wages”.

He added: “Working people are on average over £1500 a year worse off since David Cameron came to office, yet very high earners have enjoyed a huge tax cut.”

The Bank of England has admitted that the pace of falling unemployment and the “robust recovery” has taken it by surprise, and forecast 0.7 per cent growth “or a little higher” for the third and fourth quarters.

But output is still behind its pre-crisis peak in 2008, while wage growth lags behind inflation, meaning households are suffering a real-terms income squeeze.

John Allan, national chairman of the Federation of Small Businesses, said: For the third quarter in a row, the growth has come from all sectors, which points to a rebalancing economy and should make for a more stable recovery.

“Much of the positive economic growth has come from the improved housing market and consumer spending. The recent hike in the cost of energy combined with real wages rising below current inflation levels will mean that households have less to spend.”