UK economic growth revised down for third quarter 2012

There was bad news for chancellor George Osborne as official figures showed growth in the UK economy was slower than initially thought in the third quarter, along with a deterioration in public finances last month.

The Office for National Statistics had said the UK economy grew by 1% in the third quarter but that was revised down to 0.9% on Friday.

Separate figures from the ONS show the government borrowed more than expected in November, as spending rose but tax receipts fell from a year earlier.

Howard Archer of IHS Global Insight said: "The disappointing Novemberpublic finance data fuel mounting expectations that at least one of the credit rating agencies will strip the UK of its triple A rating in 2013."

Archer also said it "looks touch and go" as to whether the economy can avoid renewed contraction in the fourth quarter.

Rachel Reeves, Labour's shadow chief secretary to the Treasury, slammed the government for "failing on the one test they set themselves – to get the deficit and debt down.

"As a flatlining economy and rising long-term unemployment has sent the welfare bill soaring and tax revenues down the government is borrowing billions more simply to pay for the cost of their economic failure.

"By squeezing families and businesses too hard, choking off the recovery and so pushing borrowing up not down, David Cameron and George Osborne's economic plan has completely backfired. And they have decided that millions of striving working families will pay the price for this economic failure with cuts to tax credits and benefits while millionaires get a tax cut."

Data from the ONS showed the key services sector – which accounts for three quarters of GDP – grew by just 0.1% in October, suggesting a weak start to the last three months of the year.

Vicky Redwood at Capital Economics said activity has been much weaker and the UK economy may well have shrunk in the fourth quarter. She notes that real consumer spending is now estimated to have risen by 0.4% rather than 0.6% in the third quarter. "So without the Olympics boost, spending may well have fallen."

The UK emerged from recession in the third quarter, when the economy was lifted by London hosting the Games, providing a boost to consumer spending. But economists fear that effect is now fading and output could fall again in the final quarter. Another quarter of contraction early in the new year could see the UK falling into a 'triple-dip' recession.

Public sector borrowing, meanwhile, came in at £17.5bn, considerably higher than the £16.3bn in November 2011, and way above forecasts for a total of £16bn. That brings borrowing for the fiscal year to £92.7bn – excluding the transfer of Royal Mail pension assets – up from £84.4bn this time last year.

The chancellor's preferred forecaster, the Office for Budget Responsibility, now expects borrowing to hit £108.5bn this year, almost 7% of GDP. Redwood said: "Although a number of temporary factors flattered the OBR's new forecast for borrowing this year, the underlying picture is that the weak economy is preventing the deficit from falling."

There was one bright spot in the figures, which showed the current account deficit narrowed from £17.4bn to £12.8bn in the third quarter.