Olympic boost for David Cameron as Britain bounces out of recession

 
Prime Minister David Cameron meets tool technician Adam Gorzala during a visit to Panorama Antennas in Wandsworth, South-west London today. PRESS ASSOCIATION Photo. Issue date: Thursday October 25, 2012. See PA story ECONOMY GDP Cameron. Photo credit should read: Stefan Rousseau/PA Wire

David Cameron was today handed a huge Olympic boost as the best set of economic figures since he became Prime Minister showed that Britain had bounced strongly out of recession over the summer.

The nation’s output jumped by one per cent in the three months to the end of last month — far faster than City economists had forecast — and the best quarterly growth since the Northern Rock disaster in 2007.

The Prime Minister, who hinted yesterday in the Commons of "good news" to come, welcomed the robust return of recovery and said the economy was on "the right track". But he played down hopes that Britain's long slump was now at an end.

Economists also warned that if "one-off" factors such as the Olympics and the Jubilee were stripped out, underlying growth in GDP — the official measure of the size of the economy — was still slow.

Jeremy Cook, chief economist at foreign exchange company, World First, said: "While this is undoubtedly a welcome surprise, upon breaking down the numbers we should not get caught up in a flurry of champagne corks and party poppers. Overall underlying true growth is only 0.3 per cent at the moment — very much in the 'bouncing along the bottom' region."

In its statement the Office for National Statistics said ticket sales, hotel bookings and other Olympic related

spending added around 0.2 per cent to third quarter GDP. The loss of a day's production in the previous quarter because of the extra Diamond Jubilee bank holiday in June, also flattered today's figure.

The ONS said "the underlying pattern is one of subdued economic expansion" and added that GDP was no bigger than it was a year ago after nine months of "double dip" recession.

Speaking during a trip to a business in Wandsworth, Mr Cameron said: "There’s still a long way to go but these figures show we are on right track with the right approach."

The recovery was driven by a 1.3 per cent surge in the dominant service sector. Manufacturing and other productive sectors grew by 1.1 per cent but construction output slumped again, by 2.5 per cent, although this was smaller than in the two previous quarters.

Today’s GDP announcement completes a week of far more encouraging data with unemployment, inflation and the deficit all falling and retail sales rising. Chancellor George Osborne said: "By continuing to take the tough decisions needed to deal with our debts and equip our economy for the global race we’re in, this Government is laying the foundations for lasting prosperity."

But Shadow Chancellor Ed Balls said while the emergence from recession was "good news" it came after a year of "damaging flatlining".

He added: "With living standards falling, more tax rises on the way, small business lending down and the eurozone still in crisis, it would be very unwise of David Cameron and George Osborne to just sit back, cross their fingers and hope for the best."

Business leaders gave a cautious welcome to the surprise one per cent jump. David Kern, chief economist at the British Chambers of Commerce, said: "While the news is positive, the estimate must be put in context. The one per cent GDP figure for Q3 is affected by distortions in the second quarter due to the Jubilee and Olympic ticket sales.

"Compared with a year earlier, the figures show that the economy is stagnant, with growth for 2012 currently at 0.3 per cent, three per cent below the level seen at the beginning of 2008, when the recession started."

TUC General Secretary Brendan Barber said: "The economy is barely any bigger than it was two years ago and we are still on course for the slowest recovery this century. It's time to change course so we can secure the strong sustained growth we desperately need."

Bounceback boost made in London

Analysis: Jonathan Prynn

The Olympic glow just will not fade away. The achievements of Mo Farah, Jonnie Peacock and the rest gave the economy a £3 billion boost, according to today’s GDP figures.

This is a bounceback "made in London". About half of the jobs created over the summer were based in the capital.

But outside London and the home counties today’s figures will be met with cynicism. Much of the country is still locked in an economic deep freeze and, as another set of statistics revealed this week, most of us have been getting steadily worse off for four years. National income per head is 13 per cent lower than it was before the financial crisis hit in the autumn of 2008.

The danger is that one good set of numbers will raise false hopes.

The rate of inflation is falling but a spike in energy bills and another surge in food prices  could start to push up the cost of living well beyond wage increases. It was this kind of a squeeze, combined with the euro crisis, that killed the last set of green shoots in 2010 and 2011.

David Cameron should enjoy the moment of relief today. It may not last. There is a scenario — if inflation returns and Greece defaults — that could yet see Britain slump into its first "triple dip" recession, with no Olympics to ride to the rescue. It does not bear thinking about.

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