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Thursday, 20 December, 2001, 11:53 GMT
UK economy set to outperform
UK manufacturing down again
The UK economy grew faster than previously thought during the year to September 2001, according to new official figures.

The UK is sitting firmly at the top of the G7 growth scale

Arjun Mittal
Amex economist
UK economic output, or gross domestic product, for the year is now estimated at 2.2%, up from 2.1% previously, the Office for National Statistics (ONS) said on Thursday.

The higher annual growth rate is due to faster than expected economic expansion, especially in the leisure and retail sectors, during the first six months of the year.

The new growth estimate for the year to September, which will not be revised again, is more closely in line with the Treasury's target range of 2.25%-2.75% for annual expansion.

UK still growing fastest

The new figures confirm that the UK is growing at a faster rate than any other industrialised economy.

Last month, official data showed that Germany, the third biggest economy in the world, shrank by 0.1% between July and September.

According to the Organisation for Economic Cooperation and Development, the top-placed US economy will grow by just 0.7% next year, while world number two Japan is set to shrink by 1%.

"This paints a pretty good outlook for the UK economy. The UK is sitting firmly at the top of the G7 growth scale," said Arjun Mittal, economist at American Express.

The positive growth figures helped to support share prices in London, with the FTSE 100 index of leading UK shares edging slightly higher in early trade.


However, the latest statistics confirm that the UK still faces a serious imbalance between its manufacturing and service sectors.

They also suggest that data for the final three months of the year, due out in February, may reveal slower growth.

Manufacturing sector output fell for the third successive three-month period between July and September, slumping by 1.1%.

The service sector, meanwhile, expanded by 0.6%, down sharply from 0.9% during the April to June period.

Analysts fear that a continued slowdown in the service sector, which accounts for four-fifths of UK jobs and two-thirds of its output, would tip the economy as a whole into recession.

Spending spree

So far, the relative strength of the service sector has helped to keep unemployment low despite large-scale lay-offs by manufacturers.

Credit cards
Consumer spending soars

Low unemployment, combined with historically low interest rates, has stoked consumer spending to the point where it is now one of the UK's main economic growth drivers.

However, high levels of consumer debt could exacerbate the impact of a full-blown recession, economists warn.

Figures out on Thursday from the British Bankers' Association showed that UK consumers so far show no sign of letting up, with credit card borrowing soaring to a 17-month high of 4.87bn in November.

In the red

There was more positive news on Thursday when ONS said that money leaving the UK in the form of foreign investment and other transfers exceeded inflows by just 2bn between July and September.

This is down from 4.6bn during the previous three months.

A persistently high deficit would put the pound under pressure against other world currencies, which could limit the Bank of England's scope to cut interest rates.

A third set of official statistics showed that heavy spending on services pushed the public purse 5.7bn into the red last month, down slightly from 5.8bn in October.

The government's overdraft, which contrasts with hefty monthly surpluses this time last year, underline the dangers of falling economic growth.

The government depends on steady economic expansion to raise the taxes it needs to meet higher spending commitments.

Missing growth targets by too wide a margin could force the government to raise taxes or borrow more.

See also:

22 Nov 01 | Business
Rich countries on the brink
22 Nov 01 | Business
No UK recovery until 2003, says CBI
22 Nov 01 | Business
The chancellor's choices
14 Nov 01 | Business
UK economy to recover in 2003
26 Oct 01 | Business
UK growth surprisingly strong
18 Oct 01 | Business
Sales growth slows at UK stores
24 Sep 01 | Business
UK growth 'to fall sharply'
26 Oct 01 | Business
Analysis: How fit is the UK economy?
22 Nov 01 | Business
UK economic growth trimmed
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