LONDON, NOV 1 - The economy grew by 0.5 percent in the third quarter of this year, driven by the strongest growth in business services and finance in four years, official

data showed on Tuesday.

However, a separate survey showed that the manufacturing sector shrank at the sharpest rate in over 2 years in October, with the Purchasing Managers' Index falling more than even the most pessimistic analyst had forecast.

KEY POINTS FROM THE ONS RELEASE:

- Business services and finance posted their strongest quarterly growth since the third quarter of 2007

- The ONS said there was no evidence that the riots in major English cities in August have any significant impact on Q3 GDP

- The ONS gave no estimate by how much Q3 GDP had been boosted from a mere rebound from the special factors that hit growth in the second quarter.

- In a separate release the ONS said services output increased by 0.3 percent over the month in August.

ANALYSTS VIEWS:

HOWARD ARCHER, IHS GLOBAL INSIGHT

The good news is that UK GDP growth came in slightly above expectations at 0.5% in the third quarter.

The bad news is that this performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come. Growth was clearly lifted in the third quarter by the making up of some activity lost to one-off distorting factors in the second quarter. We expect the economy to essentially stagnate in the fourth quarter of 2011 and the first quarter of 2012, before slowly improving. We see GDP growth at 0.9% overall in 2011 and expect a similar outturn in 2012.

AMIT KARA, UBS

GDP was in line with our forecasts but it should be seen as a backwards looking indicator. The bounceback is due to a relatively weak holiday affected second quarter.

More important was the PMI numbers which suggest the outlook for Q4 is particularly weak but we shouldn't get too carried away before the more important service sector data.

SIMON HAYES, BARCLAYS CAPITAL

We did expect a temporary rebound from Q2 because there were some there were some temporary factors weighing on growth.

Normally we would consider a rate of 0.6 to be consistent with an environment of stable employment. If you bear in mind that the ONS estimate was 0.5, with temporary factors weighing on growth. Given that, we should have expected a starting point of 0.5. This does imply that the underlying Q3 rate was actually zero. The underlying situation is one of barely any growth and continuing increases in unemployment

VICTORIA CADMAN, INVESTEC:

Starting with GDP it's positive, slightly firmer than expected, there is a feeling of relief after near stalling growth over the last nine months. However, there is a big however. This seems to be boosted by special factors, in particular the royal bank holiday which depressed the Q2 outturn and the Q3 numbers.

Overall it's moderately positive but given those special factors it's not indicative of recovery taking off. A fairly soft fourth quarter of growth still looks to be on the cards, particularly taking into account the disappointing PMI which was published just before GDP and implies that the manufacturing sector is contracting.