Relief for George Osborne in official figures – but economists warn that the comeback will be short-lived
George Osborne will receive a boost this week from official figures confirming that the Olympics effect helped to bounce Britain out of recession in the third quarter of 2012.
City analysts believe the economy expanded between July and September, after shrinking for the previous three quarters in the longest double-dip recession since the second world war.
That would mark the official end of the recession, and allow the chancellor to present a relatively upbeat picture of the economy in his autumn statement on 5 December, following news that unemployment has started to decline.
The respected National Institute of Economic and Social Research has forecast a healthy third-quarter growth rate of 0.8%, and Osborne is likely to seize on the upturn as evidence that his policies are starting to bear fruit.
However, economists are already warning that the comeback will be short-lived, with growth in the third quarter artificially inflated by temporary factors including Olympics spending and the recovery from the extra jubilee bank holiday in June. The Office for National Statistics has decided that all spending on Olympics tickets will be "scored" in third-quarter GDP, whenever the payments were actually made.
Rachel Reeves, shadow chief secretary to the Treasury, said: "This one-off boost from the Olympics is not a long-term strategy and it should not breed yet more complacency from ministers, however big it is. Even growth of 1% would simply mean the economy is the same size as a year ago. The big questions are what is the underlying level of growth in our economy, what growth can be generated in future quarters, and whether and how we can catch up all the ground we have lost over the last two years."
Howard Archer, of consultancy IHS Global Insight, said: "We believe that the economy has exited recession and is now eking out very limited underlying growth helped by reduced inflation, rising employment and an edging up of earnings growth from early-2012 lows boosting consumers' capacity to spend."
Michael Saunders, UK economist at Citi, warned that even once the recession was over, the economy could face several more years of weakness. "We've got all of these headwinds. It's everything: austerity; the euro crisis; the health of the banks; household debt – all of them."
He added that living standards – measured as real GDP per head – had still not recovered to pre-recession levels, reversing a long-term rising trend. "We're below the peak, and I don't think we'll get back to where we were for at least five years."
Brendan Barber, general secretary of the TUC, said: "This doesn't feel like a recovery to the millions of workers whose wages have now been falling in real terms for several years and who can't get enough hours to make ends meet. And it certainly doesn't feel like a recovery to the 2.5 million people out of work, a third of whom haven't had a job for over a year."
Despite the expected upturn in the second half of 2012, the economy remains far weaker than most analysts anticipated at the start of the year.
In its budget forecast in March, the Office for Budget Responsibility predicted 0.8% growth for the whole of 2012 – already a sickly pace, but considerably stronger than the 0.4% contraction now expected by the International Monetary Fund.
The Bank of England's monetary policy committee is widely expected to expand its unprecedented £375bn quantitative easing programme next month, unless the economy shows clear signs of a stronger recovery.