A special recovery

  • 25 October 2012
  • From the section Business
Osborne balloons Image copyright Getty Images
Image caption Mr Osborne "knows that 1% growth is going to be a hard enough act for our troubled economy to follow"

Thursday's first estimate for growth is welcome news to everyone, not least government ministers.

In effect, it confirms that the last three months of this latest recession were brought to you by the Queen. Or at least the extra Bank Holiday to celebrate her Jubilee.

If it had not been for that special factor pulling down output in the second quarter, it looks as though the UK's official GDP numbers would have shown the economy to be growing since the spring.

We can't say for sure how much the Bank Holiday or the Olympics have distorted these figures.

We do know that Olympic ticket sales worth 0.2 percentage points of GDP were included in this third quarter figures, regardless of when the tickets were actually bought.

We also know that the Bank of England, among others, believes the Jubilee will have knocked around 0.5 percentage points from growth in the second quarter - and then boosted the third quarter by a similar amount as companies make up the lost output.

One way to step back from this is to simply take the average quarterly growth for the past six months, which appears to have been 0.3%. That is half the long-term average, and a lot less than we would want to see in an economy that is still more than 3% smaller than it was in early 2008.

It also means the economy is no larger now than it was a year ago. This may or may not be a "lost decade". It has certainly been a lost year, if these preliminary figures turn out to be accurate.

But it is growth - even with all the one-offs - and faster growth than most in the City expected. It is even possible now that the UK economy will grow slightly over the course of 2012, though most still expect national output to decline a little. That is because the figure for the fourth quarter is unlikely to be nearly as good as Thursday's. Indeed, some expect it to shrink in the last three months of 2012 - though the average forecast is for modest growth.

The positive "surprise" in these figures is largely to be found in the service sector, which is estimated to have grown by 1.3% in the third quarter, after shrinking by 0.1% in the three months before.

For some, that is another reason to take this first estimate with an extra dose of salt: service sector output is especially hard to measure accurately, even without all these special factors being thrown into the mix.

However, as Neville Hill at Credit Suisse points out, two much smaller sectors - construction and energy - have also been pulling the figures down in the past six months.

If you strip out just these two highly volatile parts of the economy, GDP rose even faster in this quarter - by 1.3%, after a decline of 0.2% in the three months to June. So, without those two, the underlying rate of growth in this period would be closer to the long-term average of 0.5-to-0.6% a quarter.

Ministers will understandably savour the moment: the fastest quarterly growth since 2007, at a time when we have had also had good news employment, inflation and borrowing.

Today's news would sound even more exciting if we reported it the way that most other countries do. In the US, for example, we would say that the economy had grown at an annualised rate of around 4%. That sounds fantastic.

Then again, you can see why George Osborne wouldn't want to encourage this kind of talk. He knows that 1% growth is going to be a hard enough act for our troubled economy to follow.