UK economy gains pace, puts BoE rate hike on track

LONDON: Britain’s sluggish economy perked up slightly during the past three months, an unexpected boost that clears the way for the Bank of England to raise interest rates next week for the first time in a decade. While falling short of the strong growth rates enjoyed by euro zone countries earlier this year, British economic growth picked up to 0.4 percent in the July-September period from 0.3 percent in the second quarter, official data showed yesterday.

Sterling climbed almost a full percentage point against the US dollar on the figures, which beat the average forecast for growth of 0.3 percent in a Reuters poll of economists. British five-year government bond yields also rose to their highest since last year’s vote to leave the European Union as markets anticipated a quicker pace of BoE rate rises next year. Britain performed much better than most economists expected immediately after last year’s vote to leave the European Union, and it was one of the fastestgrowing major advanced economies in 2016.

But it slipped to the bottom of the pack earlier this year, posting its worst first-half performance since 2012, largely due to higher inflation caused by the pound’s fall after the Brexit vote, at a time when its peers have enjoyed robust growth,

While yesterday’s figures are a small boost for under-pressure finance minister Philip Hammond ahead of his November budget, they do not alter the broad picture of an economy dogged by poor productivity and squeezed living standards. “Despite the weak outlook, the Bank of England will now almost certainly raise the Bank Rate by 25 basis points ... on 2nd November,” said Daniel Vernazza, chief UK economist at UniCredit. A Reuters poll published on Tuesday showed the BoE is widely expected to raise rates to 0.50 percent from 0.25 percent on Nov. 2, due to concerns that the economy cannot grow as fast as it used to without generating excess inflation. — Reuters