The recession is over - but outlook remains gloomy

THE longest double-dip recession since the 1950s will be declared over by official figures today amid warnings about the underlying health of the economy.

Gross domestic product (GDP) - a broad measure for the total economy - is predicted by City experts to have grown 0.6% between July and September, ending three consecutive quarters of declining output.

But the bounce-back in the third quarter will be largely driven by one-off factors, such as clawed-back activity lost to the extra bank holiday for the Queen’s Diamond Jubilee and a slight lift from the Olympics.

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But looking through the “distortions”, some economists have warned the UK is far from out of the economic woods and can expect growth to slow in subsequent quarters.

Economic indicators, such as purchasing manager surveys, suggest the manufacturing and construction sectors remained weak throughout the period, although the powerhouse services sector should deliver a robust performance.

Howard Archer, chief UK and European economist at IHS Global Insight, warned any recovery was looking “fragile, feeble and far from guaranteed”.

“Looking through the distortions to GDP in the second and third quarter, the likelihood is that the economy is eking out limited growth,” he added.

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The figure, published by the Office for National Statistics (ONS), is a preliminary estimate based on the output side of the economy and is subject to revisions.

The economy shrank by 0.4% in the second quarter, according to the ONS, which was revised up gradually from an initial estimate of a 0.7% decline.

Britons would be £1,800 a year better off had the country avoided the double-dip recession, a survey by PwC for The Times newspaper found.

John Hawksworth, chief economist at PwC, said annual incomes would have been 9% higher without the financial crisis, and the economy’s output £200bn - 12.8% - higher, with hundreds of thousands more people in work.

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Meanwhile, a statistics watchdog is investigating claims the Prime Minister breached rules by hinting that good news can be expected in today’s GDP figures.

Labour said David Cameron’s assertion in the Commons yesterday that positive signs on the economy “will keep coming” was a clear reference to the keenly-awaited numbers.

Selected ministers and senior officials get 24 hours’ advance sight of sensitive official data - a practice the head of the UK Statistics Authority (UKSA) wants to ban or restrict.

A spokesman for the watchdog said it had received a number of queries about the Prime Minister’s words, adding: “We are going to look into it.”

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But Mr Cameron’s official spokesman denied that the Prime Minister was talking about the gross domestic product (GDP) figures and was simply reflecting a wider expectation of improvement.

The UK has been battling against sluggish consumer spending, Government cuts and high unemployment, while the struggling eurozone has hit exports.

Even though underlying growth is considered to be weak, analysts said the recovery has been helped by lower inflation, recent gains in employment and an edging up of earnings growth.

The economy is also expected to continue growing in the fourth quarter from October to December but at a much slower rate, with predictions coming in around the 0.3% mark.

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The Bank of England is expected to pump further emergency support into the economy next month through its quantitative easing programme, which hit £375 billion in July.

The Bank and the Treasury also launched the £80 billion Funding for Lending scheme in a bid to unclog the flow of credit to Britain’s households and businesses.

Mr Archer added: “The UK still has a very tough job in developing significant sustainable growth given tighter fiscal policy, ongoing serious problems in the eurozone and generally soft global growth.

“In addition, there are still significant pressures facing consumers that are likely to limit the upside for their spending for some time to come.”