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Britain finally emerges from double dip recession
Olympic effect lifts the UK economy to growth of 1%, after three quarters of economic contraction.
The British economy finally accelerated out of a lingering double-dip recession in the third quarter of the year, when GDP grew by a surprisingly strong 1% helped by Olympic ticket sales.
The growth follows three consecutive quarters of economic contraction as the economy has been hit by the slowdown in the eurozone as well as reduced spending by companies and cash-strapped consumers.
A third-quarter expansion was expected – economists on average forecast growth of 0.6% – after the boost provided by the Olympic Games and as part of a statistical rebound from a second-quarter reading that included the additional bank holiday for the queen’s jubilee.
As well as ticket sales, the Office for National Statistics (ONS) said the 'Olympic effects' that helped produce the fastest quarterly growth for five years boosted employment, accommodation, transport and retail.
Output from the production and service industries grew in the quarter, but construction sector output decreased by 2.5%
GDP and its main components (source: ONS)
The pound, which was already higher ahead of the news, leapt to $1.6106. The FTSE 100 added to its gains, up nearly 0.6% on the day to 5,835
Today’s figure is, however, the first of three readings from the ONS, each of which are apt to change as they take an increasing amount of data into account. Economists warned that the UK economy's underlying weakness remains. 'Business survey data suggest that the economy's underlying quarterly growth trend over the past two quarters has been more like 0.1-0.3%,' commented Chris Williamson of data company Markit.
Alan Clarke warned that the figure could get revised lower, but he added: 'There is a very good chance that UK GDP growth for 2012 might find itself on the right side of zero. It is a close call, but we suspect that the UK avoided a contraction for the year as a whole.'
The figure provides ammunition for Britain’s coalition government, which has come under increasing pressure from the International Monetary Fund to reduce its austerity plans in order to let the economy grow. 'There is still much to do, but these GDP figures show we are on the right track, and our economy is healing,' commented prime minister David Cameron, by way of Twitter.
It will also raise questions about the Bank of England’s next move, with expectations still high that the Bank’s monetary policy committee will provide more stimulus when it meets on Threadneedle Street in two weeks. That is when the £375 billion quantitative easing programme will have been exhausted.
Bank governor Mervyn King cautioned on Tuesday night that the bond-buying scheme – which has been widely criticised for its lack of effect on the ‘real economy’ – has its limits, and that Brits should be ‘patient’ in the face of a slow global economic adjustment. King has said that the economy will zig-zag in and out of growth this year.
Cameron (pictured) has been accused of leaking the news that Britain is out of a recession by telling the House of Commons yesterday ‘the good news will keep on coming’.
Labour said the comment was a 'clear reference' to the official GDP figure. Cameron is one of a handful of people given access to market-sensitive information such as GDP figures ahead of their publication.
A spokesperson for the ONS this morning declined to comment on whether Cameron had breached the rules.
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