Lords give Osborne a drubbing as shaken economy is stirred by the Bond effect

George Osborne was little slow off the mark yesterday in tweeting his response to Britain's third-quarter growth figures. But then the chancellor of the exchequer has had his hands full trying to push through government plans to cut tax credits for millions of the nation's poorest households.

And he may have needed a little more time than usual to put a positive spin on a GDP figure that showed growth had slowed from 0.7 per cent in the second quarter to 0.5 per cent, when most forecasters had expected 0.6 per cent.

In the end, Osborne opted to tweet one of his favourite refrains – that Britain continues to outperform other major economies. But, he added, “global risks mean we go on with tough decisions to live within our means”.

Those “tough decisions” include reform of tax credits, which were brought in by the last Labour government as a way to give financial help to low-paid families. Osborne wants big cuts, a move which has proved highly controversial amid calculations that some families could lose as much as £1,300 a year as a result.

Despite the misgivings of many MPs, the House of Commons voted through the reforms. But Osborne suffered a humiliating defeat in the House of Lords on Monday night, as the unelected upper chamber broke with the protocol of rubber-stamping government financial legislation and voted to delay the changes.

Tricky problem

The £4.4 billion that would have been saved by the cuts was a key part of the chancellor’s planned £12 billion saving on welfare payments and he will now be forced to find the money elsewhere – and to come up with a new plan in time for his autumn statement on November 25th.

That is, arguably, a trickier problem than a slowdown in economic growth to 0.5 per cent. But the GDP figures are another blow to Osborne and raise fresh fears that the recovery is running out of steam.

Like other countries, the UK has been affected by the recent cooling of the global economy. But there are also signs of a loss of momentum in the domestic market, and the manufacturing and construction sectors are suffering.

While the dominant services sector fared well enough, construction had a terrible time, with output tumbling by 2.2 per cent in the three months to September in the worst quarter for builders in three years.

And, despite all the talk of a “March of the Makers”, the figures showed manufacturing remains mired in recession, with a contraction of 0.3 per cent during the period.

So it continues to be consumers, not manufacturers, who are driving the recovery, with the still dominant services sector advancing by 0.7 per cent. Within that, one of the strongest performances came from the film and music business, which increased its output by almost 6 per cent. Over the past year, the increase is an even more impressive 36 per cent.

As Britain's economic update coincided with the release of the eagerly-awaited spy thriller Spectre, these stellar figures from the film industry were swiftly dubbed "the Bond effect".

Let’s just hope cinema goers continue to do their bit for the economy by turning out in numbers to see 007’s latest adventure.

Save Our Steel

If film was the star performer, then steel was one of the worst, with iron and steel production suffering a contraction of 7 per cent over the quarter.

That’s little surprise, as global prices have plunged in the wake of cheap Chinese exports, and thousands of workers have lost their jobs. Key industry figures, including a director of Tata, were called to Westminster yesterday to answer questions on the plight of the steel sector and there is a debate tomorrow on its future.

The livelihoods of one in six UK steelworkers are now under threat and many will travel to London ahead of the debate to deliver an SOS – Save Our Steel – to politicians. Workers will converge on Westminster from Teesside, Lincolnshire, Yorkshire, the west Midlands and south Wales, all areas affected by the cutbacks.

The government is giving some help to the industry by allowing it extra time to meet new European Union rules on emissions, a move which has been welcomed by the trade organisation UK Steel. Business secretary Sajid Javid is also going to Brussels to make the case for firmer action on unfair trade in the sector . Fiona Walsh is business editor of theguardian.com