Consumers helped propel the U.K. economy to its fastest growth since 2007 in the third quarter as the London Olympics and a post-Jubilee rebound saw household spending increase the most for more than two years.
Gross domestic product rose 1 percent from the second quarter, the same as reported on Oct. 25, the Office for National Statistics said today in London. No revision was forecast, according to the median of 33 estimates in a Bloomberg News survey. It means Britain exited a double-dip recession in the last quarter.
The surge may prove short lived, with a boost from the London Olympics in August and a rebound from the previous quarter when an extra public holiday curbed output explaining much of the gain. The Bank of England predicts the economy may shrink in the final three months and has kept the door open to further stimulus after it paused bond purchases this month.
“Payback is likely in the fourth quarter,” said Chris Williamson, chief economist at Markit in London. “Meanwhile, with the euro-zone debt crisis continuing to hit demand in the U.K.’s main export market, and with global business confidence at a post-crisis low, exports are also unlikely to continue to act as a driver of U.K. economic recovery.”
Overall, output was 0.1 percent lower than a year earlier, revised from a previous estimate of no change. The pound was little changed against the dollar and was trading at $1.6023 as of 11:22 a.m. in London.
Consumer spending rose 0.6 percent on the quarter, the most since the second quarter of 2010. It contributed 0.4 percentage point of total growth in the period. Statisticians estimate Olympic ticket sales added 0.2 of a percentage point to growth.
Exports rose 1.7 percent, with net trade contributing 0.7 point to growth. The figure was boosted by spending by foreign tourists during the Olympics, which is recorded as an export. Business investment rose 3.7 percent, the fastest since the second quarter of 2011. That contributed 0.3 percentage point. Government spending rose 0.6 percent, adding 0.1 point to growth.
Output in services, the largest part of the economy, rose 1.3 percent, the most since the third quarter of 2007, with the Olympics giving a boost to retail sales, recreation and culture. An index of services for September fell 0.5 percent on the month. Industrial production rose 0.9 percent, while construction fell 2.6 percent. Both were revised slightly lower from previous estimates.
The compensation of employees rose by 1.4 percent on the quarter, the most in almost three years. The ONS said the rise was driven by employer pension contributions.
Britain was hit hard by the financial crisis and the economy has recovered only half of the output lost during the 2008-2009 recession. While Germany and the U.S. are back above their pre-recession peaks, output in the U.K. remains 3.1 percent below. Only Italy among Group of Seven nations is further behind.
That signifies the scale of the task facing Bank of Canada Governor Mark Carney, who was named yesterday as the successor to Mervyn King at the head of the Bank of England. Speaking after his appointment, Carney said, “I’m going to where the challenges are greatest.”
“He certainly faces no shortage of a to-do list,” Simon Wells, a former BOE official who is now an economist at HSBC Holdings Plc in London, said on “The Pulse” on Bloomberg Television today. “I think compared to Mervyn King, we can expect a more pragmatic and more creative approach to policy setting rather than just a continued reliance on more QE and gilt purchases.”
In its quarterly Inflation Report this month, the Bank of England said Britain faces a “long and winding” recovery as the euro-region debt crisis and the squeeze on earnings from rising fuel prices weigh on spending, exports and investment. King told lawmakers in London today the chances of a rapid recovery are not very great.
Recent reports showed jobless claims unexpectedly increased in October, while survey-based indexes of services and manufacturing fell more than forecast. The euro area has returned to recession and concern is mounting over the $607 billion in tax increases and spending cuts that will hit the U.S. in January unless lawmakers act.
The U.K. economy will shrink 0.1 percent this year and grow 0.9 percent in 2013, the Organization for Economic Cooperation and Development said in its semi-annual Economic Outlook today.
Chancellor the Exchequer George Osborne will acknowledge the deterioration in Britain’s economic outlook when he delivers his autumn statement to Parliament on Dec. 5. His fiscal watchdog is expected to cut its growth forecasts, possibly forcing Osborne to extend his deficit-reduction program to 2018.
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