–Repeating Version Of This Report 1st Transmitted Monday Oct 31

LONDON (MNI) – The UK’s third quarter data are expected to show
modest economic growth, boosted by delayed activity from the second
quarter, but fears are growing the economy will contract again in the
final quarter of this year.

Analysts’ median forecast is for growth of 0.4% on both the quarter
and year. National Statistics said the impact of the extra Royal Wedding
Bank Holiday and supply disruptions from the Japanese Tsunami knocked
around 0.5 percentage point off Q2 GDP. With much of this lost output
expected to have been recouped in Q3, a 0.4% outturn would indicate
little, or no, underlying growth.

The Purchasing Managers Indices, a patchy guide to growth in
volatile times, pointed to positive Q3 growth in the service sector.
With any reading above 50 indicating expansion, the September Services
PMI outturn was 52.9, following August’s 51.1.

The CIPS manufacturing data showed the sector rebounding in
September, to 51.1 after a shock contraction in August, with a 49.4
reading.

Markit, which compiles the PMIs, said they were compatible with
0.4% growth in Q3 and some analysts cite them as supportive of their
expectations of modest growth last quarter.

The fourth quarter growth data, however, should be free of the
distortions of the Q2 and Q3 figures, and may well show an economy that
is even shrinking.

“I certainly do think the underlying rate of growth of the economy
is weak now and I wouldn’t be terribly surprised if we were to see
output contract in the fourth quarter,” Bank of England Monetary Policy
Committee member Martin Weale said in a recent Channel 4 interview.

The economy has turned out to be weaker than the MPC believed back
in the summer. In the August Inflation Report, the MPC’s implied
forecast was for Q3 growth of 0.75% on the quarter and just under 1.7%
on the year.

MPC member Adam Posen, who has been persisently downbeat about the
UK’s economic outlook, told the Independent newspaper last week that his
growth forecast was “roughly 0.5% or below for 2011 and 0.5% or above
for 2012″.

That pessimism may be excessive – the average independent forecast
in the Treasury’s latest survey is for 1.0% growth this year.

Nevertheless, the economic recovery, already painfully slow, does
seem to be running out of momentum.

Amit Kara, economist at UBS, is expecting the Q3 data to show 0.5%
growth, but he has cut his forecast for 2012 growth to just 0.7% from
1.5%. The euro zone crisis and financial market volatility are seen
weighing on activity, with UBS predicting a euro area recession in the
first half of 2012.

With the first of the October PMIs due out just ahead of the Q3 GDP
data on Tuesday, with the former out at 0928 GMT and the latter at 0930
GMT, and with Q3 GDP boosted by one off factors, even a relatively
strong number is unlikely to provide much comfort.

–London Newsroom: 0044 20 7862 7491; email: drobinson@marketnews.com

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