Games effect helps lift UK out of recession
By Richard Johnstone | 25 October 2012
The UK is out of recession following an estimated 1% growth in the economy in the three months to September.
Preliminary figures released by the Office for National Statistics today show output grew for the first time since the same period in 2011. The economy is now at the level of a year ago, after three consecutive quarters of falling growth.
Gross domestic product in the quarter was boosted by the Olympics and Paralympic Games in London. The value of the ticket sales for both events are included in today’s figures, although they were sold in tranches throughout 2011 and 2012. The ONS estimates that the sales increased GDP in the quarter by around 0.2 percentage points. It says that employment could also have been boosted by the Games, and there is ‘some evidence’ that output from the entertainment and accommodation sectors were up as a result.
The quarter also benefited from a ‘bounce back’ effect compared with the second quarter, in which output was depressed by the additional bank holiday in June for the Queen’s Diamond Jubilee. Some estimates concluded that this shrank GDP by as much as 0.5%.
Responding to the figures, Chancellor George Osborne said: ‘There is still a long way to go but these figures show we're on the right track and are a sign the economy is healing.’
He added: ‘We’ve cut the deficit by a quarter, over 1 million jobs have been created in the private sector, inflation is down and the economy is growing. ‘Yesterday’s weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad. By continuing to take tough decisions to deal with debt and equip our economy ,we are laying the foundations for lasting prosperity.’
Azad Zangana, a European economist at Schroders, said the growth estimate was better than expected. ‘The results are significantly stronger than the 0.6% consensus estimates, and our own estimate of 0.5%.’
However, he said it was ‘difficult to judge’ whether growth would continue, adding that the UK remained at high risk of a ‘triple-dip’ recession in 2013 as domestic austerity continued and external demand was hampered by the eurozone crisis.
Tony Dolphin, chief economist at the Institute for Public Policy Research, said that if special factors are removed, underlying growth was estimated to be around 0.3% in the quarter.
‘The outlook is still very uncertain, not least due to the prospect of increases in food and energy prices renewing the squeeze on households,’ he added. ‘The chancellor should respond in his Autumn Statement. Spending on infrastructure gives the biggest boost to the economy in the short term. George Osborne should announce an immediate increase in infrastructure spending of £15bn over the next two years to kick-start growth.’
Andrew Sissons, researcher at the Work Foundation, said that the improvement in the production industry output, which grew by 1.1% over the quarter, was ‘encouraging’. However, the figures did ‘little to change the overall impression of a flat UK economy’, he added.