–Adds Detail To Version Transmitted at 0930 GMT
–Q3 Preliminary GDP +0.5% q/q; +0.5% y/y
–Q3 Preliminary GDP Median Forecast +0.4% q/q; +0.4% y/y

LONDON (MNI) – Economic output rose at its fastest quarterly pace
for a year in the third quarter, but much of this was only a bounceback
from anaemic growth in the second quarter.

National Statistics said that GDP rose 0.5% on the quarter in Q3
and was up 0.5% on the year. This was a little above the median forecast
for a 0.4% increase on the quarter and the year.

The bounce in output on the quarter, which is still below trend,
follows growth of just 0.1% in Q2, when activity was depressed by the
impact of the Royal Wedding and Japanese Tsunami to the tune of around
0.5 percentage point.

National Statistics would not comment on how much of the growth in
Q3 was a direct bounceback from the special factors in Q2, but it seems
clear that much of the growth seen in the latest quarter was a direct
result of the dampened activity in the previous quarter.

This means that underlying Q3 growth could be significantly weaker
than the headline number suggests. In a press conference following the
release of the data a National Statistics official acknowledged that
growth in Q3 would have been boosted the unwinding of the special
factors, adding that there would be a simple arithmetic effect where
stalled output in Q2 would result in higher growth in Q3.

National Statistics said it was best to look at both Q2 and Q3
together, where growth was 0.6% over the period, a very lacklustre
performance.

Moreover, the latest official forecast from the Bank of England in
August assumed that growth would rise 0.75% on the quarter in Q3.

Events in the eurozone since August have worsened considerably and
most analysts have donwgraded their growth forecasts, and members of the
BOE’s Monetary Policy Committee have made clear the central bank will cut
its forecasts in the upcoming November Inflation Report.

“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.

In spite of today’s above median forecast outturn it will do little
to change the view that the BOE may still choose to add further stimulus
to the economy with more Quantitative Easing at some point in the
future.

Overall growth in Q3 was driven by a bounceback in the services
sector, where output rose 0.7% on the quarter following a 0.2% rise in
Q2. The strongest growth came from transport services where output was
up 0.9% following flat growth in Q2, where output was depressed by the
Royal Wedding.

Business services and finance output rose 0.8% on the quarter, the
strongest rise since Q3 2007, a clear indication that the sector was
starting to finally recover from the banking crisis which started in
2008.

Industrial production was up 0.5% on the quarter in Q3, following a
1.2% fall last quarter. Manufacturing growth was stable at just 0.2% on
the quarter.

Construction growth fell 0.6% on the quarter following a rise of
1.1% in Q1, while agricultural output rose 0.4% following a 0.9% fall in
Q2.

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

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