Instant View - Third quarter GDP revised down, public finances worsen

LONDON (Reuters) - The Office for National Statistics released revised third-quarter GDP figures and November public sector finances data on Friday.

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KEY POINTS

- Biggest quarterly increase in GDP since Q3 2007

- Biggest quarterly increase in industrial output since Q2 2010

- Biggest quarterly increase in services output since Q3 2007

- Biggest quarterly increase in gross operating surplus of corporations since Q3 2010

- Highest household savings ratio since Q3 2009

- Highest level on record of public sector net debt excluding financial sector interventions as a share of GDP, at 68.5 percent

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ECONOMISTS' VIEWS

HOWARD ARCHER, IHS GLOBAL INSIGHT

"The modest revisions to the GDP data do not fundamentally change the story of an economy that is likely to have been essentially flat overall in 2012, with the quarterly performances distorted since the second quarter by a number of factors, notably including the Queen's Diamond Jubilee and the Olympics.

"It currently looks touch and go as to whether the economy can avoid renewed contraction in the fourth quarter as it faces the unwinding of the Olympics boost.

"News that service sector output only edged up 0.1 percent month-on-month in October reinforces (the) belief that the economy is having a difficult fourth quarter, but at least services output was marginally positive and that gives a small boost to hopes that the economy will avoid renewed contraction.

"While it really makes little difference whether the economy grows marginally in the fourth quarter, is flat or contracts marginally, it would be good for confidence if the economy could avoid a GDP decline and avert headlines of a 'triple dip'.

"With economic recovery likely to remain fragile and limited, we believe there is still a very real possibility that the Bank of England will ultimately decide to give the economy a further helping hand with a final 50 billion pounds of QE (quantitative easing)during the first half of 2013. However, this seems unlikely to happen before the second quarter, if at all."

ROSS WALKER, RBS

"We had 0.9, it looked quite a close call between 0.9 and 1.0. But, with the monthly industrial production numbers showing small downward revisions, we thought it would probably be trimmed. I suppose the Q3 number reinforces the weakness.

"The more significant figure is the October services sector output number. This is the first official estimate we have for any Q4 month. It is not a great number but it is positive and it is better than the decline that had been expected.

"On the basis of all the published data it looks like the fourth quarter will be broadly flat, rather than negative - based on the published data.

"I think the Bank of England's policy is on hold in terms of QE, probably the focus is more on the Funding for Lending Scheme.

"They could easily come back to it, but I think it is probably a second half of next year story once Mr Carney is in place, and his nine member committee. You could get a slight change in emphasis or focus when he comes in. We don't expect more QE, but if it comes it is a second half of next year story."

TOM VOSA, NATIONAL AUSTRALIA BANK

On GDP: "Not entirely surprised, that was our forecast. The partials that we'd had from retail sales, from industrial production, all pointed to this. To some degree this is old news and 0.9 or 1.0 percent doesn't really matter, it's still very strong growth."

On public finances: "It does make us wonder how the Chancellor is going to meet his borrowing targets when in reality borrowing tends to be running now a little bit above where we were last year.

"They must be hoping for a very big increase in revenues in January, which given the weakness of corporation tax and the reduction in financial sector pay I find very difficult."

PHILIP SHAW, INVESTEC

"There's a lot of data being released and there's no single overriding trend. We're not surprised to see GDP revised down a touch but what matters a lot more are prospects for the fourth quarter and because of last week's construction data, we're more optimistic that a decline will be avoided.

"Current account again, it's reassuring to see that there's been a narrowing of the deficit over the third quarter. Effectively, as earnings from direct investment have bounced back after two quarters of weakness. Nonetheless, one would still reach the conclusion that imbalances in the economy remain."

Public finances: "It's another month of disappointing deficit data and it's pretty clear now that barring unexpected positive developments, that the underlying deficit will widen this year, compared with 2011-12.

"We wouldn't say that the releases as a whole have that many implications for economic prospects.

"Although we suspect that the GDP figures will be a bit better than expected over the next quarter, perhaps next couple of quarters, it is clear that the underlying pace of growth will remain weak for some time to come.

"I think what's important here is whether the Bank of England's Funding for Lending Scheme has a positive effect on credit flows that the housing market picks up and that we see a sustained recovery in business investment as well."

DAVID TINSLEY, BNP PARIBAS

"The headline GDP figure is a shade disappointing, but 0.1 percentage point is not a big deal in the grand scheme of things. The fact that the service sector output rose in October is at least as important.

"It does suggest that, while some of the production data has been weak in the fourth quarter, the service sector momentum looks, at the outset of the quarter, to be holding up."

Public finances: "The data continue to show a worrying slippage against the government forecasts.

(To achieve the OBR forecasts) there has got to be either some improvement in the numbers or back revisions, or at the end of the financial year the under spends of government departments needs to be quite significant. All that we will see in due course but for now the figures still look like they are worse than OBR was expecting."

JAMES KNIGHTLEY, ING

"All in all, the UK appears to be ending 2012 not in particularly great shape and as such we suspect the Bank of England has more work to do with further policy stimulus likely in early 2013, especially if the worst fears over the U.S. fiscal cliff materialise."

Public finances: "For the financial year to date (2012/13), income tax revenues, corporation tax revenues and VAT revenues are all down on the same period for financial year 2011/12.

"This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for.

"Government cash outlays are down as well, but this is purely down to lower interest costs resulting from the plunge in yields, helped by BoE purchases and the UK's relative safe haven status."

ALAN CLARKE, SCOTIABANK

"I actually think the monthly services (figure) was the most important one. That makes it all the more likely that the UK did not slip into a triple dip recession at the end of the year.

"The chances are that we could grow by 0.3 percent, maybe even more, because we had stonkingly good construction data and some growth in services, although clearly that could change in November and December.

"Notwithstanding the drop in industrial production, I think we probably grew. So it has been a great end to the year."

Public finances: "The public finances are going in the wrong direction. But we know that there is all sorts of jiggery pokery going on with the transfer of coupons by the ONS (Office for National Statistics), probably next month. So, it is very hard to read too much into that data."

(Reporting by London newsroom)

Source: http://news.yahoo.com/instant-view-third-quarter-gdp-revised-down-public-094308432--business.html

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