November 27, 2012 / 9:37 AM / 5 years ago

Olympic spending propels UK economic rebound in Q3

LONDON (Reuters) - Spending at the London Olympics fuelled Britain’s strongest quarterly economic growth in five years between July and September, although that strength is unlikely to be sustained.

Tuesday’s figures, confirming that Britain has come out of recession, will buoy Chancellor George Osborne a week before he is due to deliver his half-yearly budget statement.

Gross domestic product expanded by 1 percent on the quarter, in line with the Office for National Statistics’ initial estimate and economists’ forecasts.

However, business surveys have since painted a gloomier picture of the fourth quarter, and retail sales - a gauge of vital consumer spending - posted a surprise drop in October.

“The good news from the third quarter is unlikely to last,” said Rob Wood, economist at Berenberg Bank.

“With the one-off boost from the Olympics unwinding in the fourth quarter and business surveys downbeat, a return to contraction is likely,” he added.

Outgoing Bank of England Governor Mervyn King has warned that output may shrink again between October and December.

Compared to a year ago, GDP was 0.1 percent lower, slightly worse than first thought, the ONS said.


Consumer spending rose 0.6 percent on the quarter - the biggest increase in more than two years. The ONS said that was driven by spending on recreation and culture, including tickets for the London Olympics and Paralympics which took place between late July and early September.

The third-quarter GDP reading was also flattered by a rebound from the previous three months when an extra public holiday dented output.

Britain’s net trade position improved, with exports rising 1.7 percent on the quarter - partly due to spending by tourists - and imports dipping 0.4 percent, the ONS said.

Output in Britain’s service sector, which makes up more than three quarters of GDP, rose by 1.3 percent in the third quarter - the largest increase in five years. It fell 0.1 percent in the second quarter.

Industrial output was 0.9 percent higher, while construction contracted by 2.6 percent.

Britain has not fully recovered the output lost in the wake of the financial crisis, while the euro zone’s debt problems, government austerity to reduce the budget deficit and banks’ reluctance to lend are holding back economic growth.

Additional reporting by Li-mei Hoang; editing by Stephen Nisbet

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