UK Expected to Emerge From Recession on Back of Olympics Bounce

Britain is this week expected to emerge from recession, with the Olympics providing a much needed boost to the economy in the third quarter. Analysts expect a 0.6% rise in GDP, lifting the economy out of the longest double-dip recession since the second world war. GDP declined over the previous three quarters.

The data out on Thursday will provide a further boost for George Osborne, coming after news of falling unemployment. That could strengthen the chancellor's resolve to stick to "plan A" budget cutting measures ahead of the autumn statement in December.

Economists said the rise in GDP would largely be a result of temporary effects, such as the Olympics. A bounce back is also expected after the jubilee weekend in the second quarter dented output.

Vicky Redwood at Capital Economics said those factors would add at least 0.7% to third-quarter GDP. "GDP will therefore need to have risen by more than that to point to any recovery in underlying output. Anything less should be viewed as disappointing."

She said the result could influence the monetary policy committee's decision over whether to extend the £375bn quantitative easing (QE) programme next month: "Last week's MPC minutes showed a clear difference of opinion on the committee. A weak GDP figure could tip any wavering members to voting for more QE."

The expected rise in growth comes as a report shows people feeling better about their household finances than in almost two years. Although budgets continue to be squeezed, the Markit household finance index shows they are deteriorating at their slowest rate since December 2010. The reading for October came in at 39, up from 38.4 in September. It is still way below the 50 mark that would point to improving household budgets.

Households were, however, downbeat about the outlook for their finances, with 45% of those surveyed saying they expect their financial situation to worsen over the year ahead, compared with 20% expecting an improvement. Tim Moore at Markit said the deterioration in outlook over household budgets meant Britons were likely to keep a tight rein on spending in the months ahead.

This article was written by Josephine Moulds, for The Guardian on Monday 22nd October 2012 00.05 Europe/London