11/01/2011 05:47 EDT | Updated 01/01/2012 05:12 EST

UK Q3 GDP up by 0.5 per cent, better than expected

LONDON - Britain's economy improved in the third quarter, with output growing by a higher than expected 0.5 per cent, official figures showed Tuesday.

The figure reported by the Office for National Statistics was ahead of the market consensus forecast of a 0.3 per cent quarterly rise. The statistics agency said the British economy was helped by a big 0.7 per cent pickup in the services sector output and a 0.5 per cent improvement in industrial production. They helped offset a 0.6 per cent contraction in the construction industry.

The growth figures came as rare good news for an economy weighed down by high inflation, rising unemployment and cautious spending by pessimistic consumers.

Despite the better than expected growth, analysts remain cautious about the outlook for the British economy, especially at a time when the government is enacting a big austerity package and Europe's debt crisis remains a worry.

Jonathan Loynes, chief European economist at Capital Economics, said the latest figures "do not alter our view that the economy is likely to fall back into recession over the coming quarters."

Concern about the economy last month prompted Bank of England rate-setters to authorize 75 billion pounds ($120 billion) in additional asset purchases to stimulate activity.

The economy grew by 0.4 per cent in the first quarter of the year, then dropped to 0.1 per cent growth in the second quarter.

Tuesday's figure is a first estimate and is subject to revision.

The GDP announcement coincided with the release of the latest Markit/CIPS manufacturing index which showed confidence at a 28-month low. Purchasing managers in the survey reported a substantial reduction in new orders.