George Osborne is wise not to be triumphalist: stripping out one-off distortions, the true growth could be as little as 0.3%
So now we know what David Cameron meant when he said the good news would keep coming. The 1% expansion in GDP in Q3 was the strongest since the world economy felt the first tremors of the financial crisis in 2007, and well above City expectations. Having been shockingly bad three months ago, the growth figures were surprisingly good this time – although not quite as good as they looked.
Two special factors flattered the data for the third quarter. The first was the bounce back from the output lost as a result of the extra bank holiday in June, which probably accounted for half the increase. The second was the Olympics, ticket sales from which boosted GDP by 0.2 points.
As a result, genuine growth in Q3 was probably in the region of 0.3%; not bad by the UK's recent poor standards but half the long-term pre-recession trend. Stripping out the distortions caused by one-off factors, the economy has probably been growing at an average rate of 0.2% in the last two quarters.
The immediate prospects for the economy look decidedly mixed. Consumer spending appears to be rising gently as inflation comes down, but the housing market is flat, credit flows to business are still contracting and forward-looking surveys have been weak.
The risk that the expansion in the third quarter proves to be a flash in the pan explains why George Osborne wisely avoided sounded triumphalist after the figures were announced. Clearly, the official end of the double-dip recession is welcome for a chancellor preparing an autumn statement in little more than a month's time. Osborne still believes the economy can come good in time for a 2015 election, and his message on Thursday was that Britain is moving in the right direction. He has a story to tell, and that's politically important.
Ed Balls, the shadow chancellor, was keen not to sound churlish, welcoming the recession's end but noting that the UK's performance under the coalition had not just been worse than the chancellor had been expecting, but also compared badly to the growth records of Germany and the United States.
Ahead of the GDP announcement, the assumption was that growth in 2012 would be down on 2011 – a third successive year of decline in output since the downturn began. But Thursday's news means that the UK now has a fighting chance of avoiding that embarrassment, provided the third quarter data is not heavily revised down and that there is no relapse in the final three months of the year.
Interestingly, the Treasury did not rule out the possibility of the economy weakening again in the fourth quarter as the temporary effects wear off. Dearer energy bills, a spike in food prices caused by the US drought and a deepening recession in the eurozone make that a real possibility.
Sir Mervyn King made it clear earlier this week that the Bank of England expected the recovery to be slow and patchy, with activity supported by ultra-loose monetary policy. Bank rate will remain at its emergency level of 0.5%, with further doses of quantitative easing kept in reserve should the economy show signs of weakening. The hope for the government is that the recovery becomes self-sustaining, with stronger consumer spending making companies more willing to invest.
All bets would be off if Greece was bundled out of the single currency or the US jumped off the fiscal cliff – the package of tax increases and spending cuts worth 4% of GDP due to be implemented in January.
So is there a risk the UK will suffer a triple-dip recession for the first time in its history? Yes, although in the absence of a fresh external threat a period where the economy "bumps along the bottom" currently looks more likely.
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