Olympics Boost UK Q3 GDP

According to the ONS preliminary estimate, output increased by 1% q/q in Q3 2012, after declining for three consecutive quarters (-0.4% q/q in Q4 2011, -0.3% in Q1 2012 and Q1 and -0.4% in Q2). Demand counterpart breakdown will not be available until the end of next month, when GDP second estimate is published.

Total services output bounced back markedly, up by 1.3% q/q in Q3, adding 1pp to GDP growth. The largest contribution to this increase was from government and other services, which were up by 1.6% q/q and added 0.4pp to GDP growth. In particular, sports activities, arts & entertainment and health made the largest positive contributions to the increase. According to the ONS, the strength in sports activities was mainly due to Olympic ticket sales. In addition, the Olympic boosted hotel and restaurant activity in London (adding 0.2pp to GDP growth) as well as strength from employment agencies. Construction output declined once again, down 2.5% q/q, after already -3% in Q2, cutting 0.2pp off GDP growth. Total production output increased 1.1% in Q3 2012, after -0.7% in Q2. The largest contribution to the increase in this quarter was from manufacturing, which rose 1% q/q, adding 0.1pp from GDP growth.

Mining and quarrying bounced back, up 2.3% q/q, though not offsetting Q2 fall (-3.3%). Electricity, gas and water supply fell by 2.2% q/q. Finally, agriculture, forestry and fishing output increased by 2.2%.

Today figures are a piece of good news for David Cameron, along with the fall in unemployment and inflation. Nonetheless, the question remains what the underlying growth rate of the economy is when the one-off Olympics (which probably added around 0.5pp to GDP growth) and Bank Holiday effects (in comparison to Q2, Q3 had one more working day) are stripped out. Given that UK economic prospects remain clouded by the overseas outlook and especially the euro zone crisis, the economy still stresses a long way to recovery. Assuming zero growth in Q4 2012, GDP would be roughly unchanged (down 0.1% y/y in 2012) and still weak next year.

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