UK economy's return to growth gets cautious welcome

Business groups have given a cautious welcome to the news that the UK economy emerged from recession in the three months from July to September, helped by the Olympic Games.

The economy grew by 1.0%, according to official gross domestic product figures (GDP), which measure the value of everything produced in the country.

This growth was better than expected.

The Institute of Directors said the return to expansion was good news "but not enough to pop the champagne corks".

The British Chambers of Commerce (BCC) said work now had to be done to ensure the recovery was sustained.

John Longworth, director general of the BCC, said: "This news will give many businesses the confidence to invest. But the government still has work to do to ensure than an economic recovery is sustainable.

"Ministers must listen to calls from businesses to help them get the finance they need, and support to find new international markets for their products and services."

Andrew Smith, chief economist at accountancy group KPMG, said the UK economy still looked "pretty flat". He added: "It's not exactly a recession, but not exactly a recovery either.

"While technically we are now out of the double-dip recession, it would be unfortunate if attention was distracted away from the big picture.

"GDP is still some 4% below its pre-recession peak, and with lingering domestic headwinds, the threat of an escalation of the crisis in the eurozone, and only slow progress in rebalancing the economy, the recovery is set to remain fragile."

The Office for National Statistics said that Olympic ticket sales had added 0.2 percentage points to the figures.

The BBC's economics editor Stephanie Flanders said: "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."

The data also exceeded expectations from economists, who had predicted an increase of 0.6% in the quarter.

Commerzbank economist Peter Dixon said the Olympic games was likely responsible for half the economic growth seen during the three months.

He added: "If you look at most of the other evidence, it's consistent with an economy that is growing relatively slowly. So a sluggish economy in the wake of domestic problems and whatever else is happening in the eurozone."

The markets gave the growth data a muted response, with the main UK share index, the FTSE 100, ending the day up just 0.3 points.

The economy had been in recession for the previous nine months and has still not recovered the levels of output seen before the financial crisis in 2008.

The ONS said that beyond the effect of ticket sales, it was hard to put an exact figure on the Olympic effect, although it cited increased hotel and restaurant activity in London as well as strength from employment agencies.

The GDP figures were also enhanced by comparison with the previous three months, because the second quarter had an extra public holiday as part of the Diamond Jubilee celebrations in June, as well as unusually bad weather, which reduced growth.

"There is still a long way to go, but these figures show we are on the right track," said Chancellor of the Exchequer George Osborne.

"Yesterday's weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad."

Shadow chancellor Ed Balls praised the news but said that the figures "show that underlying growth remains weak".

"A one-off boost from the Olympics is welcome," he said. "But it is no substitute for a plan to secure and sustain the strong recovery that Britain desperately needs if we are to create jobs, get the deficit down and make people better off."

The data is a preliminary estimate from the ONS, meaning that the third-quarter figures could be revised higher or lower.

"While the news is positive, the estimate must be put in context," said David Kern, chief economist at the British Chambers of Commerce.

"The 1% GDP figure for the third quarter is affected by distortions in the second quarter due to the Jubilee and Olympic ticket sales. Compared to a year earlier, the figures show that the economy is stagnant."

The ONS said that the economy had contracted by 6.4% between the start of 2008 and the middle of 2009, and had since recovered about half of that output.

The level of output in the third quarter of 2012 was almost exactly the same as it had been in the third quarter of 2011.