Growth figures raise chance of rate hike
● Small rise in GDP comes a week before Bank of England’s interest rates decision
The UK economy unexpectedly accelerated in the third quarter, upping the pressure on the Bank of England to raise interest rates next month.
The Office for National Statistics ( ONS) said gross domestic product ( GDP) grew by 0.4 per cent in its initial estimate for July to September this year.
The rise is above expectations of 0.3 percent as economists predicted growth inline with the first and second quarters of 2017.
The lion’s share of the expansion came from the services and manufacturing in d ustries, which countered a dismal display from the construction sector. However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.7 per cent.
It comes ahead of the Bank’s Monetary Policy Committee’s ( MPC) latest meeting about whether to raise interest rates from record lows of 0.25 per cent in November as inflation continues to soar.
Howard Archer,EY Item Club’s chief economic adviser, said: “Improved third- quarter GDP growth of 0.4 per cent quarter-on-quarter increases the chances that the Bank of England will raise interest rates from 0.25 per cent to 0.5 p er cent on 2 November after the MPC meeting.
“Significantly, the Bank of England’s recent more hawkish stance has come despite its expectation that GDP growth was limited to 0.3 percent quarter-on-quarter in the third quarter.”
Higher than expected thirdquarter growth is a boost for Chancellor Philip Hammond as he gears up to deliver his Budget next month.
He recently warned that Brexit had left the UK economy under a“cloud of uncertainty ”, while the Inter national Monetary Fund raised the growth outlook for every advanced economy aside from Britain because of its European Union“divorce ”.
The Chancellor said :“We have a successful and resilient economy which is supporting a record number of people in employment.
“My focus now, and going into the Budget, is on boosting productivity so that we can deliver higher- wage jobs and a better standard of living for people across the country.”
On an annual basis, GDP expanded by 1.5 per cent in the third quarter, compared to the same three months in 2016.
Sterling shot up in the wake of the release, rising more than 0.3 per cent against both the US dollar and the euro to $ 1.317 and € 1.119 respectively.
Darren Morgan, the ONS head of national accounts, said the third- quarter growth was at a “similar rate” to the first half of the year.
He said :“Services, led by increases in IT, motor trades and retail, continued to drive GDP growth.
“Manufacturing also boosted the economy with an improved performance after a weak second quarter.
“However, construction output fell for the second consecutive quarter, although it remains above its pre- downturn peak.”
Britain’ s powerhouse services sector, which accounts for around 79 per cent of the UK economy, grew by 0.4 per cent during the third quarter, the same rate as the three months before.