The UK has avoided falling into a recession after official figures confirmed slow, but positive, economic growth in the third quarter of the year.

The Office for National Statistics confirmed the economy grew by 0.3% in real terms between July and August. The pressure was on because the preceding April to June period had shown a 0.2% fall - another negative reading in the third quarter would have confirmed a technical recession.

A return to growth had been expected but economists at the ONS noted that the overall trend for the economy remains weak. In the past year the economy has grown just 1% - the lowest year-on-year growth since the start of 2010 when the economy was first emerging from the financial crisis.

The numbers today may still change. They are the first reading of the economic data for the third quarter and are based on only around 40% of the data that will be eventually used to calculate GDP. Readings will be updated in the coming months and revisions are possible.

If they remain broadly the same, however, it will confirm that the UK is sharing the pain of a widespread global slowdown in growth. Central banks in the US and Europe have begun action to stimulate their economies with the Federal Reserve and European Central Bank loosening monetary policy this summer. After a period of appearing at odds with that stance the Bank of England, too, took on a more dovish tone last week when two of the nine members of its Monetary Policy Committee voted to cut rates.

From an investor’s point of view there are two ways of looking at the current economic picture - one optimistic and one pessimistic. The gloomier view is that stock markets are lagging growth and will soon reflect the weakness in the underlying economies that drive them in the long term. Earnings growth in the US has been slowing and that will put current high valuations under pressure.

The sunnier view - and the one that equity markets seem to have settled on for now - is that the weakness in the world economy in fact represents a return to normality, with growth rising and falling on a cyclical basis. As landings go, this looks like a soft one with Central Banks ahead of the curve in acting to prevent a deep recession.

This optimism perhaps explains why there has been a partial recovery for some deeply undervalued cyclical companies, and a slowing of the share prices of high-quality growth companies that have done so well for so long. Investors, it seems, expect the current slowdown to be brief and crucially to be accompanied with monetary stimulus that stock markets have learned to love.


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