GDP rises to 0.5 per cent

Gross domestic product grew by 0.5 per cent on the quarter as business services and finance posted the strongest quarterly increase in four years, according to the Office for National Statistics.

However, the Purchasing Managers' Index (PMI) survey released earlier showed that manufacturers saw the sharpest monthly rate of decline since June 2009 in October.

Economists see most of the third quarter growth as a mere rebound from weak growth of 0.1 percent in the second quarter when an extra holiday for the royal wedding and supply-chain disruptions caused by the tsunami in Japan shaved off as much as 0.5 percentage points from quarterly growth.

The ONS said the annual growth rate eased to 0.5 per cent in the three months through September, from 0.6 percent in the second quarter.

Business services and finance were the biggest contributor to overall growth in the third quarter, growing by 0.8 per cent. Overall services output grew by 0.7 percent. Industry output rose by 0.5 per cent, with manufacturing posting only 0.2 percent growth. Construction was down 0.6 percent on the quarter.

The Bank of England launched a fresh round of quantitative easing in early October, pumping another £75bn of cash into the economy, as policymakers warned that the euro crisis threatens to push Britain into recession.

The announcement by Greece to hold a referendum over the euro zone rescue deal has introduced new uncertainty and sent markets into a tailspin.

Business secretary Vince Cable told Reuters in an interview on Monday that the country can still avoid recession.

But a string of surveys have painted a bleak picture, with the PMI's fall to 47.4 points hinting at an extremely weak start of the manufacturing sector into the fourth quarter.

Consumer confidence slumped to levels that previously heralded the start of a recession and the CBI industry lobby's survey showed that manufacturers suffered the biggest drop in orders in a year and expected to cut production.

With unemployment already at a 17-year high in the three months to August and many households worried about job security and their own finances, the pressure is rising on the government to ease its austerity drive and do more to boost growth.

Chancellor George Osborne's Treasury is trying to come up with ways to increase growth without compromising the government's pledge to erase the deficit of some 10 percent of gross domestic product over the next five years.

The ONS said it had no evidence that the riots in major cities in August had a significant impact on GDP. The office did not provide an estimate by how much Q3 GDP had been boosted from a mere rebound from the special factors that hit growth in the second quarter.