Comment: Olympic boost could prove hard to quantify

On such bureaucratic decisions may depend whether or not we remain in recession.

By another quirk, the ONS does not adjust the GDP figures for the different number of days worked in each quarter. As there were more working days in Q3 than Q2, when we had the extra holiday for the Diamond Jubilee, output will be up automatically.

The truth is that it is difficult to tell if the Games will have any particular impact on growth. Additional sports-mad visitors are just as likely to be offset by ordinary tourists avoiding the crush.

However, my intuition is that the Olympic affect is likely to prove mildly positive. The consensus among UK economists polled by Reuters is that there will be a rebound in Q3, with 0.7 per cent growth – enough to cancel out the 0.7 point decline in Q2.

Even if something like this transpires, we will still be in trouble. Most forecasts for 2012 as a whole suggest the UK economy is stagnating – neither contracting nor expanding, but bumping along in neutral.

On the positive side, output remains where it was in the mid Noughties, when we all thought Gordon Brown had created an economic miracle. Greece we certainly are not.

Plus this week’s welcome employment figures showed the biggest quarterly rise in two years. Half the new jobs were created in London, surely a by-product of the Games. On the downside, there is nothing handy to power the economy back into permanent growth. The trade deficit is at a 15-year high, ending hopes of an export-led recovery. Sterling has risen around 15 per cent against the euro in the past year, which means UK exports are 15 per cent dearer.

Worse, unit manufacturing labour costs are actually increasing – normally you would expect productivity to rise in a recession as firms squeeze more production from fewer workers, or invest to lower costs.

Domestic consumption is also flat. This week’s unexpected jump in inflation could dampen the enthusiasm of consumers for a bit longer.

Incidentally, when is the Bank of England going to get its inflation forecasts correct? Dogged Sir Mervyn King is now predicting inflation will fall to below the official 2 per cent target in the fourth quarter. If it does, it will be the first time in years.

Here is a question for Mervyn: why are you so desperate to see deflation? Accumulated debt is holding back state and consumer spending. Austerity only makes matters worse. If we are going to have inflation, let’s do it properly and wipe out those debts, and kick-start spending again.

Otherwise the UK will wallow in economic stagnation for the next decade.

It’s an interesting place to be, the world of oil

MELROSE Resources, the Edinburgh-based oil and gas independent, is to merge with Ireland’s Petroceltic. This is a classic move in the sector. Lean and hungry oil independents are good at sniffing out new reserves, compared with the ponderous energy giants. That’s why they attract private equity money.

But the indies also need production to give them cash-flow, especially when today’s banks have gone awol.

Petroceltic has big, undeveloped reserves in Algeria. Melrose has production expertise and gas (and profits) already coming on shore from its Bulgarian and Egyptian fields. The enlarged group, with Melrose’s Robert Adair as non-exec chairman, makes a good fit.

Wildcatting is a high-risk business, even when oil prices are rising. Last year, oil stayed above $100 a barrel.

But the total market cap of the UK’s top 25 independents actually fell by 16 per cent – even more that the 5.5 per cent fall in the FTSE. Reason: the Arab Spring and the euro crisis chased investors into defensive stocks, capsizing several oil sector IPOs.

Oil prices have surged in recent weeks, with Brent heading towards $120 a barrel.

On Thursday, the Obama White House dropped heavy hints it might respond by releasing oil from strategic reserves.

Oil futures duly fell. For the next few months expect oil to remain a football in the US election.