UK economy struggles back to growth

27 October 2012

The British economy nudged out of recession in the three months to the end of September, the Office for National Statistics said on Thursday.

Gross domestic product (GDP) grew by 1% after the Olympic Games offered a boost to the economy, which had been floundering in a double-dip recession.
Vicky Redwood, chief UK economist at Capital Economics, was upbeat about the news, saying the growth was ahead of the firm's expectations and adding: "Admittedly, much of this reflected temporary factors. But even accounting for this suggests that underlying output managed to rise by a small amount - an improvement on recent quarters.
"As for the policy implications, the figures could tip the balance towards the [Bank of England's] Monetary Policy Committee holding fire at the upcoming meeting (although even if it pauses in November, we still expect more asset purchases at some point)."
Jason Conibear, trading director at forex specialist Cambridge Mercantile, sounded a more cautionary note: "We've emerged from the double dip but nobody is denying that we've had the wind behind us. It's hard to quantify but the real figure, minus the Olympic boost and other one-off factors, is likely to be roughly half this.
"With the global economy as finely balanced as it is, there's every chance we could see more contraction during 2013."

According to Azad Zangana, European economist at Schroders, it's difficult to judge whether the better-than-expected numbers will continue into the fourth quarter of 2012. "More recently, business surveys like the survey of manufacturers conducted by the Confederation for British Industry showed weakening activity heading into the fourth quarter. In addition, rising domestic energy prices and food price inflation is likely to renew the squeeze on household incomes. This is likely to hurt retailers in the run-up to the crucial festive shopping period," he commented.

Zangana added that the uncertainty about the implications of the US "fiscal cliff" after the presidential elections in November make it hard to make forecasts over the health of the UK economy.

This article was written for our sister website, Interactive Investor.

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