Does it matter that the UK is out of recession?

Graph of UK GDP

Thursday's official figures on economic growth show that the UK has emerged from recession.

Gross domestic product (GDP) grew 1.0% in the three months from July to September, having contracted in the previous three quarters.

The generally accepted definition of a recession is two consecutive quarters of contraction, so the growth in the third quarter means the economy stopped being in recession in July.

Does that matter?

It is probably better to be registering growth than not registering growth, but there is more going on in the economy.

Between the start of the previous recession at the beginning of 2008 and the middle of 2009, the economy contracted by 6.4%.

Since then it has grown by about 3.2%, which means the economy is still a long way from recovering from the financial crisis.

For at least a year, the economy has been experiencing what Bank of England governor Mervyn King called a zigzag pattern, alternating between small amounts of growth and small amounts of contraction, registering almost no overall growth.

The figures for the third quarter were boosted by one-off factors such as the Olympic Games, and the second quarter's extra bank holiday and bad weather.

"We have to bear in mind of course that there is some give-back following the poor second quarter and also we've got the Olympics effect," said Sarah Hewin, senior economist at Standard Chartered.

"The underlying situation of the economy is probably a 0.2 to 0.3% quarterly growth."

The trouble is that with all these caveats, this does not feel like the UK is turning a corner, and it is perfectly possible that the economy will contract again in the final quarter of the year when it does not have the benefit of the Olympic effect.

"Regrettably, economic growth remains a lot flatter than this headline growth figure suggests," said Prof James Mitchell from Warwick Business School.

"This remains the longest lasting depression in economic history.

"Research we've undertaken indicates that there's no more than a one-in-three chance that economic growth in 2012 as a whole is positive."

The economy contracted 0.3% in the first quarter and 0.4% in the second quarter, so to avoid growth in the year as a whole there will have to be a considerable contraction in the fourth quarter.

And if the third quarter is just to be a break between periods of contraction, boosted by one-off factors, then it looks more like a blip in a period of stagnation than a turning point for the economy.