UK economy accelerates to fastest growth since 2010

Reuters

* UK GDP grows at 0.8 pct quarterly rate in Q3

* Figures provide a boost to finance minister George Osborne

* Low wages and euro zone weakness may limit future growth

By William Schomberg and David Milliken

LONDON, Oct 25 (Reuters) - Britain's economy picked up morespeed between July and September, growing at its fastest pace inmore than three years and building on an unexpected turnaroundthat has buoyed the government.

Gross domestic product rose by 0.8 percent, faster than the0.7 percent achieved in the April-June period, Britain's Officefor National Statistics said on Friday.

The quarterly growth and the year-on-year rate of 1.5percent were in line with forecasts by economists in a Reuterspoll. The numbers also made Britain, until recently a laggardamong the world's rich countries, one of its fastest-growingeconomies with an annualised growth rate of over 3 percent.

British government bond prices initially rose, reflectingexpectations among some investors that quarterly growth mighthave been closer to 1 percent, but quickly fell back. The poundstrengthened slightly against the dollar and the euro.

Joe Grice, chief economist at the ONS, said quarterly growthcould have reached 0.9 percent but for weak gas and electricityoutput. That was possibly a reflection of Britain's unusuallyhot summer this year.

Samuel Tombs, an economist with Capital Economics, saidBritain's economy was unlikely to gather much more pace becauseof wages that are rising less than inflation, more governmentspending cuts and the dormant euro zone.

"But with employment growing, confidence returning andproductivity still well below its potential, it seems unlikelythat the recovery will fade significantly either," he said.

Britain's economy has staged a surprising recovery sinceearly 2013 when it avoided falling back into recession.

The turnaround has given a boost to Conservative financeminister George Osborne, who defied calls from the InternationalMonetary Fund and the opposition Labour Party to bring forwardspending in order to get the economy off the ropes.

The government hailed the growth figures as proof that its tough approach to public spending was paying off.

"Many risks remain, but thanks to our economic plan, therecovery now has real momentum," a Treasury spokesman said.

STILL SMALLER

The growth between July and September meant the Britisheconomy expanded for three successive quarters for the firsttime since 2011.

Nonetheless, unlike almost all other developed economies,which have fully recovered output lost during the financialcrisis, Britain's economy remains 2.5 percent smaller than itsprevious peak in early 2008.

Bank of England Governor Mark Carney noted on Thursday thatgrowth was coming from a low base, so Friday's figures areunlikely to sway policy at the bank, which has suggested it willkeep interest rates at their record low of 0.5 percent for threemore years.

Earnings are lagging inflation, raising questions about thesustainability of the recovery and giving ammunition to Labourto attack the government in the run-up to a general election duein 2015.

Friday's data showed Britain's giant services sector, whichaccounts for nearly 80 percent of the economy, expanded by 0.7percent from the second quarter and was now above its peakbefore the financial crisis hammered Britain.

Growth in services was driven by the private sector, whilegovernment services lagged behind, a reflection of Osborne'spush to curb public spending.

Manufacturing grew 0.9 percent, and construction, which hasbegun to recover after a sharp contraction caused by the crisis,expanded by 2.5 percent, the strongest in more than three yearsas house building picked up, the ONS said.

Consumers, a key engine of Britain's economy, are feelingincreasingly upbeat, a separate survey showed on Friday.

A consumer confidence index compiled by market researchersYouGov and the Centre for Economics and Business Research hitits highest level this month since it was launched in April2009.

The survey showed that expectations of higher house priceswere driving the increase in confidence; homeowners expectedtheir properties to be worth 2 percent more in 12 months' time,almost double the expected gain in July's survey.

Critics of the government's economic policies say itsattempts to revive the housing market will not help bring aboutthe long-hoped-for rebalancing of Britain's economy towards moremanufacturing and exports.

The ONS's preliminary estimates of GDP are among the firstreleased in the European Union, and are based partly onestimated data. On average, they are revised by 0.1 percentagepoints up or down by the time a second revision is published twomonths later, but bigger moves are not uncommon.

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