U.K. Economy Slowed in Third Quarter, but Inflation Remains Above Target

The U.K. economy slowed considerably in the third quarter, following an unusually strong expansion in the second quarter, the British Chambers of Commerce said. To avoid a double-dip recession, the government needs to take further fiscal and monetary actions, the group said.

Results from the group's latest Quarterly Economic Survey released Tuesday in London reveal that while manufacturing remained fairly strong, the service sector worsened. Further, the employment outlook weakened and investment slowed. Meanwhile, a U.K. housing-market gauge fell to a 16-month low in September.

"To reduce the dangers of a major economic setback, forceful action must be taken by the Government and the Monetary Policy Committee," the group said.

Gross domestic product probably rose 0.5% in the three months through September, Bloomberg reported. It added that the BCC sees the economy growing about 2% a year over the next two years. While Britain's economy grew the most in nine years in the second quarter, the recovery seems to be faltering ahead of the government's budget squeeze.

"Businesses accept the Government's austerity measures," said BCC's Director General David Frost in a statement. "But now it's time to shift the national debate from cuts to what needs to be done to grow the UK economy."

However, the U.K. inflation exceeded the government's 3% limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy, Bloomberg reports. So while the danger of further economic slowdown supports further quantitative easing, the danger of inflation doesn't.