–Adds Treasury Comment To Version Transmitted At 0930 GMT

LONDON (MNI) – Economic growth in the third quarter was driven by a
large build up of stocks, while household expenditure was flat,
suggesting the economy remains extremely fragile, figures released from
National Statistics showed Thursday.

The second estimate of GDP showed growth was unrevised at 0.5% on
the quarter and 0.5% on the year, in line with the median forecast. By
far the largest contribution to growth came from a sharp rise in
inventories which possibly indicates that firms have been unable to sell
stock as the global slowdown took hold over the summer.

Inventories rose by Stg2.9 billion in the third quarter adding 0.7
percentage point to GDP growth. While at times a build up of inventory
could indicate confidence in future demand, this seems unlikely given
the current climate. National Statistics said that stocks in
manufacturing had risen by Stg1 billion over the quarter.

Household spending was flat on the quarter and down 1.5% on the
year. While this was the strongest outturn since Q2 2010 it still shows
the sector squeezed by the fall in real incomes.

Net exports, which analysts and the Bank of England alike had hoped
would provide the engine of growth this year cut quarterly GDP growth by
0.4 percentage point, having knocked 0.3 percentage point off in Q2.

In spite of public sector cuts, government spending rose 0.9% on
the quarter adding 0.2 percentage point to growth.

The Bank of England’s latest Inflation Report forecast growth to
flat-line over the next three quarters with output in 2012 likely to
rise only 0.9%. Barring some addition from household spending, a
possible draw-down in stocks could push growth into negative territory
over the coming quarters.

On an output basis, services output was revised down to show a rise
of 0.6% on the quarter compared with the initial estimate of 0.7%.
Industrial production was revised down to 0.4% from 0.5%, while
construction was revised up to -0.2% from -0.6% on the quarter.

Treasury comments on the GDP data pointed to the weaker growth to
come.

“The UK economy is not immune to the turbulence in the Eurozone and
its impact on British businesses. The Government is using all levers to
protect the UK economy and make sure that it remains a relative safe
haven in the sovereign debt storm,” it said.

–London newsroom: 44 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: MABDS$,M$B$$$,MT$$$$]