UK's Q3 GDP growth was a surprise

The UK GDP growth surprised to the up-side last week. And it wasn't just the Olympics-driven rebound.

JPMorgan: - A rebound in GDP in 3Q had been widely expected on the grounds of several temporary factors. But the reported 1.0%q/q increase was twice the size of expectations. Excluding bank holiday- and Olympics-related boosts in 3Q, GDP appears to have shown an underlying expansion of close to 0.4%q/q in 3Q—with a broad-based pickup in services output the main driver, and to a lesser extent a positive surprise on manufacturing. Growth will slow in 4Q as energy prices rise and temporary boosts fade. Moreover, the business surveys have failed to indicate acceleration, raising the possibility that the much weaker official data (up until 3Q) are playing catchup with the PMIs. Nevertheless, there is a sense that a recovery is taking place, with the GDP figures moving closer to the strong labor market and retail reports seen over the summer and into the autumn. Growth over 2Q/3Q has averaged 0.3%q/q versus the BoE’s August forecast of 0.15%.

Source: Tradingeconomics.com

It seems the UK is finally coming out of the nasty double-dip recession.

The Guardian: - So now we know what David Cameron meant when he said the good news would keep coming. The 1% expansion in GDP in the third quarter 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 Britain'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.

Clearly risks to the downside remain, particularly as the Eurozone continues to be plagued by weak economic activity - limiting Britain's growth. Credit in the UK is still tight, the unemployment rate is elevated, and household surveys show consumer unease (see discussion). But after three quarters of declining GDP, this is indeed good news for the nation that had struggled with economic malaise since 2008.

SoberLook.com