George Osborne's recovery plans receive double boost as UK rating upgraded


George Osborne's recovery plans have received a welcome boost with better than expected third quarter growth figures and a crucial upgrade in the rating of the UK economy.

Gross domestic product (GDP) grew by 0.8 per cent between July and September - less than the 1.2 per cent surge in the previous three months, but double the growth predicted by most economists.

Growth over the past six months has now hit 2 per cent, which is the fastest pace of expansion seen over two consecutive quarters for 10 years.

The data eases fears of a double dip recession and will reinforce government hopes that the private sector will pick up the slack created in the economy by mammoth public spending cuts.

Ratings agency Standard & Poor's added to the cheer by revising its outlook on the UK to stable from negative and confirming the UK's AAA rating.

The Chancellor welcomed what he called a "double dose of good news" for the economy.

Mr Osborne said: "What you see today, in an uncertain global economic environment, is Britain growing, growing strongly, the strongest growth we have seen in this part of the year for a decade, and also our country's credit rating being secured.

"That is a big vote of confidence in the UK and a vote of confidence in the coalition Government's economic policies.

"I think that will underpin confidence in the recovery going forward."

The pound surged after the third-quarter figures from the Office for National Statistics (ONS), rising against the dollar and pulling back from recent six-month lows against the euro.

Sterling's bounce back comes as experts believe the surprisingly robust figures mean any further money-boosting efforts from the Bank of England will continue to remain on hold.

But they remain sceptical the UK can maintain its growth momentum as the austerity cuts kick in, while the figures are only a preliminary estimate and may be subject to change.


It said that allowing for a bounce back in the second quarter following the bad weather at the start of the year, the underlying growth between July and September was actually similar to that of the second quarter.

Year-on-year growth has recovered to levels seen before the recession, reaching 2.8 per cent in the third quarter - the highest annual rate of expansion since 2007.

The industry breakdown showed manufacturing rose 1 per cent, services grew 0.6 per cent while construction jumped 4 per cent quarter-on-quarter following a 9.5 per cent increase in the second quarter.

The rise in manufacturing took annual growth in the sector to 5.3 per cent - its highest for 16 years - although overall industrial production output was a more muted 0.6 per cent quarter-on-quarter.

GDP has now grown for four consecutive quarters and economists believe that even if GDP slows again in the fourth quarter, the UK is heading for growth of up to 1.8 per cent in 2010.

This would be higher than the Office for Budget Responsibility forecast of 1.2 per cent made for the emergency Budget.

But there are fears this will not be sustained, with Labour leader Ed Miliband yesterday accusing the Government of taking a "big gamble with growth" by pushing through deep public spending cuts so soon.

Many economists stuck by predictions for sharply slowing growth going forward.

Howard Archer, chief economist at IHS Global Insight, said he continued to believe GDP expansion will slow to 0.4 per cent in the fourth quarter before falling further next year.

"While the data suggests that the economy had more momentum than thought in the third quarter, it does not fundamentally change our view that growth will be markedly slower going forward as economic activity is pressurised by major fiscal tightening increasingly kicking in, persistently tight credit conditions, slower global growth and significant constraints on consumers," he cautioned.

Jonathan Loynes, chief economist at Capital Economics, said today's figures made the chance of so-called QE2 action from the Bank highly unlikely at next month's meeting.

Stubbornly high inflation - currently at 3.1 per cent - would also stay the Bank's hand, he said.

"Nonetheless, with growth set to slow and inflation worries likely to ease over the coming months, we still anticipate the need for further monetary stimulus in order to soften the blow of the coming fiscal consolidation. QE2 will probably still set sail in February," said Mr Loynes.

Despite the upbeat third quarter data, recent figures have started to reveal cracks appearing in the recovery.

Industry surveys have revealed falling confidence among firms in both the manufacturing and key services, while a weaker than expected result for retail sales in September has added to the concerns over consumer spending, with sales slipping 0.2 per cent.

The housing market has also started to falter and Nationwide Building Society figures later this week are expected to show a 0.4 per cent fall in property prices between September and October.

Why are we bailing out the Irish???
This is costing 300 per household.

Are we going to do the same for our Portuguese friends next?

We're bailing out the Irish (and probably the other piigs too) because Darling Alistair agreed to it before he left office.

That said, it will only end up costing 300 per household if they subsequently default. It's a loan, not a gift. Worst case realistically, there could be a haircut.

Bailouts should be underwritten by any mineral deposits the country has, to ensure if they default that the creditors can get their money back.

Fair enough.

Europe will go bust if it keeps bailing out its weaklings.

why are we bailing out Ireland where their corporation tax is so low many UK companies are moving to Dublin.... doesn't make any sense but then once you allow politicians to meddle with economics then you end up with sh.... decisions, we should stay clear and let europe sort out the mess they created when thet insisted on having a single currency for political ends.

The other thing you need to remember here is that we haven't actually lent them the money as such just yet. It's simply being put into place for them to use if/when they request it.

Ordinarily a country would raise money through the bond markets. As one set of Treasuries fall due for redemption, the country sells new bonds on the market so they can meet the redemption together with their ongoing capital requirements.

As things stand, the crisis of confidence within the bond markets has made it difficult for countries such as Ireland to go to the bond markets without having to offer a hefty rate of interest on the bond issue. They are next due to raise money on the markets in January, and this loan being in place in advance of that will hopefully make it easier for them to get their January issue away.

Despite all the recent tales of doom and gloom, Club Med has managed to get all its recent issues away with a half decent BTC.

The problem with Ireland is slightly different, however, as a chunk of this money looks like going to the banking industry as well as to the Irish government. The stress tests on AIB suggested that there's potentially as much as 50p in the pound of toxic debt on their books and a large amount of this hasn't been fully disclosed yet. Until all that is out in the open and fully accounted for, it's difficult to see how things are going to get better anytime soon.

It's just a question of being patient until confidence returns. Once that happens, the UK taxpayer should get his money back OK.

The other fly in the ointment is that it's important they get their budget passed tomorrow. Without that being passed, they could quickly find themselves in trouble.

I think we will see our money being written as an IOU on their Irish wall.
We might never see it back.

Has Ireland got any oil block's they can sell ?

Don't worry about it, as we are.. "all in this together".

The Father of the Bride has to pick up the cost of the wedding.

Allied Irish Banks Plc and Bank of Ireland Plc's senior bonds slumped on concern the government will force some of the cost of bailing out the country's banks on senior bondholders.