UK emerges from recession due to Olympics and one-off factors

Britain is set to emerge from nine months of recession tomorrow when official data is expected to show that the economy grew by between 0.5 and 0.7 per cent in the third quarter of 2012.

However, the figures are helped by Olympic ticket sales and being compared to the previous quarter when there was an extra bank holiday. Underlying growth is likely to still be at a very low level, as it has been overall for the past two years.

Gross Domestic Product (GDP) figures will be released by the Office for National Statistics (ONS) which measures how much output there has been in the economy and the value of everything produced in the UK in the last three months.

It is likely that ticket sales receipts from the Olympic and Paralympic Games will help boost the GDP figures. Although sales were made some time ago, it was agreed that they would be accounted for in the national accounts in the quarter in which the events took place.

As well as receiving a boost from Olympic ticket sales, the third quarter will also be aided by comparison to the second quarter which included five bank holidays, one more than normal because of the Queen’s Diamond Jubilee celebrations.

The ONS previously estimated that the extra day off took off 0.5 per cent from GDP volumes in the second quarter.

Howard Archer, Chief UK & European Economist at IHS Global Insight said: “The UK is expected to have exited recession in the third quarter of 2012 but the likely decent looking headline GDP growth rate will mask a much more modest underlying performance.”

This means that excluding the one-off factors, the economy has remained steady, a situation that has been going on overall for the past two years. In the past eight quarters there have been small contractions and small rises, often due to one-off factors and the official data has been subject to a lot of revisions, making it difficult to distinguish a regular pattern.

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The economy and GDP levels are still well below the peak before the recession began in 2008.

This was a point made by the Governor of the Bank of England, Sir Mervyn King in a speech in Cardiff last night.

He said that the economy is producing 15 per cent less than it would be now, had there been moderate growth in the last four years.

He said: "The zig-zag pattern of quarterly growth rates of GDP that we have seen this year is likely to continue."

Service sector figures for Augsut point to GDP growth as the purchasing managers’ index from Markit/CIPS rose from 51.0 in July to 53.7 in August.

This means that the UK is likely to emerge from recession, but could contract again in the fourth quarter as the figures will be compared to the third quarter numbers which included the one-off Olympic ticket sales. The possibility of a triple-dip recession is still very much a factor.

Howard Archer added: “We have currently pencilled in GDP growth around 0.7% quarter-on-quarter in the third quarter. While the first estimate of the third quarter GDP is based on the output side of the economy, it is worth noting that consumer spending likely made an appreciable contribution to GDP growth on the expenditure side.

His thoughts on 2013 are that the UK is unlikely to grow by more than one per cent.

He said: “At this stage we suspect the UK will struggle to grow by more than 1% in 2013, especially given likely ongoing serious problems in the Eurozone which would continue to limit exports and also maintain serious concerns and uncertainties over the outlook.”

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