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Friday, 26 October, 2001, 09:30 GMT 10:30 UK
UK growth surprisingly strong
Office scene
The service sector is keeping the economy afloat
The UK economy is growing at much a faster rate than expected.

While the data is still mixed the early indications are that the effects in the UK of 11th September appear to be less bad than were feared

Matthew Taylor, Lib Dem Treasury spokesman
Figures for the three months to September show the economy grew by 0.6%, more than the 0.4% growth recorded in the second quarter.

This gives an annual growth rate of 2.2%.

The figures will ease pressure on the Bank of England for further cuts in interest rates.

The latest statistics include the immediate aftermath of the 11 September terrorist attacks in the US.

Some economists fear the longer-term fallout of the attacks - on the air travel industry and retail sales in particular - will dampen Gross Domestic Product (GDP) growth in the fourth quarter.

'Avoiding a recession'

But most observers believe the UK is still on course to avoid a recession.

Earlier on Friday, influential think tank The National Institute of Economic and Social Research (NIESR) said the UK will have the fastest growing economy of the major industrialised nations next year.

It predicted economic growth of 2.3% this year and 2.1% next year.

While inflation will be a little below the Bank of England's target of 2.5% in the fourth quarter of 2001, falling to 1.8% by the end of 2002.

Manufacturing slows further

Friday's growth figures, from the Office for National Statistics, showed the economy was kept afloat by the service industries.

The service sector expanded by 0.8%, only slightly slower than the 0.9% recorded in the second quarter.

There was a further strong increase in retailing and a modest growth in banking and finance.

Elsewhere, there was small increase in agricultural output, the ONS estimated, with little impact from foot-and-mouth.

Construction continued to expand at the same rate as in the previous quarter.

There was also a strong rise in the extraction of natural resources, led by another boost in gas output.

However, the manufacturing slipped further into recession.

Hi-tech slump continues

The output of hi-tech industries continued to fall, with electrical and optical equipment showing a third successive decline.

There were also falls in the machinery and equipment manufacturing sectors, although car production rose.

The UK economy has grown for 37 successive quarters since the 1992 recession, since when it has grown 30.8%.

'Euro confusion'

Matthew Taylor MP, Liberal Democrat Treasury spokesman, said: "While the data is still mixed the early indications are that the effects in the UK of 11th September appear to be less bad than were feared.

"However the long term crisis in manufacturing is getting worse. "Gordon Brown cannot hide behind the events of 11th September - the imbalance in the economy is homegrown and he needs to tackle it, starting with a clear direction on the overvaluation of sterling.

"The continuing government confusion on the timing and possibility of a euro referendum does nothing to help exporters."

Rate cut hopes

In the City, Friday's figures did little to dampen hopes of a further cut in interest rates.

So far the UK economy is holding up reasonably well but that doesn't meant that will continue

Danny Gabay, JP Morgan
Danny Gabay, of JP Morgan, said: "I think another quarter-point rate cut is a genuine possibility.

"The kind of statements we've had from Monetary Policy Committee members suggest they are open to further easing on global concerns.

"So far the UK economy is holding up reasonably well but that doesn't meant that will continue."

See also:

26 Oct 01 | Business
UK 'will avoid recession'
25 Oct 01 | Business
Mortgage lending hints at slowdown
24 Oct 01 | Business
Foreign investors shun Britain
22 Oct 01 | Business
UK economy outshines its peers
11 Oct 01 | Business
'Worse to come' for UK economy
05 Oct 01 | Business
UK has 'three-speed' economy
24 Sep 01 | Business
Why consumer confidence matters
24 Sep 01 | Sci/Tech
UK research 'falling behind'
24 Sep 01 | Business
UK growth 'to fall sharply'
23 Sep 01 | Business
'Too soon' to rule out UK recession
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