Instant View: UK quarterly GDP much stronger than forecast

Britain left recession in the third quarter after posting its strongest quarterly GDP growth in five years, official data showed on Thursday, although temporary effects may have masked a weaker underlying picture.

ECONOMISTS COMMENTS

PETER DIXON, COMMERZBANK,

"I'm guessing around about half (of the growth) was due to the Olympic effect. Unless you know what the Olympic effect was you can't really say with any degree of accuracy about what this means for the overall recovery.

"We'll take it as a piece of good news. If you look at most of the other evidence, it's consistent with an economy that is growing relatively slowly.

"Once we get the Q4 numbers out of the way, we'll see where we are and my guess is those numbers will be hopefully slightly positive and probably not very strongly positive.

"So a sluggish economy in the wake of domestic problems and whatever else is happening in the euro zone."

VICKY REDWOOD, CAPITAL ECONOMICS

"Not only did the UK pull out of its double-dip in Q3, but the 1 percent quarterly rise in GDP was a fair bit better than expected.

"But even accounting for this suggests that underlying output managed to rise by a small amount - an improvement on recent quarters.

"It won't be plain sailing from now on, though. There are still a number of constraints on the recovery. And as the Olympic effects unwind, it is still possible that the economy contracts again in Q4.

"Indeed, the business surveys have been painting a slightly gloomier picture, suggesting that underlying output is still stagnating or even falling slightly.

"As for the policy implications, the figures could tip the balance towards the MPC holding fire at the upcoming meeting (although even if it pauses in November, we still expect more asset purchases at some point).

"The Chancellor is also likely to jump on the numbers as vindication for sticking with his Plan A, suggesting that a significant change of course in December's Autumn Statement might now be a bit more unlikely.

JAMES KNIGHTLEY, ING

"It is important to remember that this 1 percent figure is boosted by working day effects.

"We are hopeful that positive GDP growth will continue in coming quarters, although a repeat of today's 1% growth rate is highly unlikely anytime soon.

"The drag from negative real household disposable income is fading given the sharp drop in inflation and the fact that employment and wages are rising.

"The Bank of England's Funding for Lending Scheme should also boost lending capacity while lowering borrowing costs for households and small businesses.

"Meanwhile, fears of another round of austerity measures are also receding. Bank of England Governor, Mervyn King, has suggested he is comfortable with some fiscal slippage as long as it is down to external weakness rather than domestic profligacy.

"However, external risks remain. The euro zone recession and sovereign debt worries plus concerns over the US fiscal cliff are likely to act as a drag on sentiment and exports.

"The recent run up in sterling is also a concern as it hurts competitiveness. This suggests to us more QE is likely in November to try and give the UK a bit more of a push while also having the added advantage of weighing on sterling."

AMIT KARA, UBS

"It's good news that we wiped out all the output loss from the previous three quarters but it's obvious that the bounceback is because of one-factors and as such, the underlying story is still very weak.

"What's also slightly concerning is the output loss on the construction sector this year. The construction sector has lost more than 11 percent of output over the last three quarters and that should stabilize and with that we should see a moderate pick-up in GDP but looking forward we only expect a very modest GDP growth into 2013.

On QE expectations:

"I think it looks rather unlikely that the central bank will go in November, but if they were to hold in November, it would be a pause rather than a full stop."

ALAN CLARKE, SCOTIABANK

"It was a very good number, but understandably good because if you have about half a percentage point add from the bounceback from the bank holiday, a 0.3 add from the Olympics and similar underlying growth, we should be growing at about 1 percent quarter on quarter.

"So although it's above consensus, it's perfectly reasonably. All in all, it's good.

"There's now a good chance the economy won't actually contract on average for this year. I would be surprised if we're on the right size of zero, it'll probably be flat and in the context of monetary policy, it reinforces the case for the Bank of England to pause on QE."