Economists say UK lagged its major rivals in third quarter

The UK lagged behind its major economic rivals between July and September, a leading economic body said today. However, a survey of UK businesses by another group showed confidence was growing.

The Organisation for Economic Co-operation and Development (OECD) contrasted the UK's 0.4 per cent decline with growth for France, Germany, Japan, Italy, and the US.

The best performance came from Japan, with 1.2 per cent growth based on initial GDP estimates. The organisation's 30 member countries averaged economic growth of 0.8 per cent during the quarter compared with stagnation between April and June, the OECD added. The figures come ahead of Wednesday's first revision of UK output for the three months to September - which showed a record sixth successive quarter of recession.

The UK has so far been hamstrung in pulling out of slump by its greater reliance on the crippled financial services sector. The GDP data came as a shock to experts anticipating a pull out of recession during the period - leading some to cast doubt on the figures after survey evidence appeared to show returning growth in services and manufacturing.

Official data published since the first estimate a month ago has shown retail sales revised upwards, although industrial production came in weaker than first thought.

Investec economist David Page said: "Our suspicion over service sector weakness leads us to pencil in a 0.3 per cent decline for the third quarter."

Last week the OECD also warned that the UK's jobless rate could soar to 9.5 per cent in two years' time, even after the economy begins to recover. It said unemployment would only reach its peak in 2011, from its recent 7.8 per cent rate and warned that further "substantive" measures may be needed to prevent lingering damage to the labour market caused by the rise in youth and long-term unemployment.

Unemployment was 2.46 million between July and September, while the jobless rate among 16 to 24-year-olds was 19.8 per cent, a record high.

BUSINESS CONFIDENCE JUMPS

Meanwhile, an industry body said that business confidence continued to grow in the last three months but the economic recovery is still seen as "very fragile".

A survey by the Institute of Chartered Accountants in England and Wales (ICAEW) found optimism jumped from a measure of 4.8 in the previous quarter to 24.6 - the highest reading for the survey since it began in 2003. But as confidence is measured relative to the previous year, the number reflects the rebound in optimism from the minus 36.3 figure a year ago when businesses were engulfed by the financial crisis.

The ICAEW stressed that while companies were more positive on the outlook, with plans to tentatively increase investment and recruitment, tight credit conditions and concerns over consumer demand continue to trouble firms.

Michael Izza, chief executive of the ICAEW, said: "The UK economy is undoubtedly in better shape than this time last year and the improvement in confidence shows the relief businesses feel to have kept their heads above water. Although we are still on track for a return to economic growth, the recovery is very fragile and will take time."

The survey comes amid expectations of a return to growth for the UK economy in the fourth quarter, after a shock 0.4 per cent fall in output between July and September.

According to the research, firms continued to report falling profits and sales over the last year, but the ICAEW said the rates of decline were moderating and businesses expect a "reasonable rate of growth" in the future. Workforces and salaries were expected to grow, but at a very low level as businesses look to keep costs low. Expectations for exports were at their strongest level for a year as the weak pound helps boost the UK attractiveness for foreign buyers.

The survey indicated that banking, finance and insurance firms were much more confident than other sectors, while manufacturing and engineering respondents saw a big increase in optimism. Across the UK, Scotland was the most upbeat, followed by the East of England. London and the South East had the largest increase in confidence, while Yorkshire and Humberside was the least optimistic.

The ICAEW survey, which canvassed the opinions of 1001 chartered accountants, was conducted between August and October.

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