UK GDP growth pips expectations

Robyn Ryan
October 27, 2017

In its first estimate of growth for the three months to September, the Office for National Statistics (ONS) said spending in the dominant services sector continued to be the engine behind the economy's performance.

However, the main drivers came from the business services and finance sector, which increased by 0.6%.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, said this morning that "markets are now pricing in an 80% chance of a rate rise next week, but the central bank has disappointed on this score before".

The Bank of England is firmly on track to hike interest rates next week, after the United Kingdom economy grew slightly more than expected in the third quarter of the year, according to official figures released on Wednesday (25 October).

Sterling shot up following the release, rising more than 0.3% against both the U.S. dollar and the euro to 1.317 and 1.119, respectively.

On an annual basis, construction output is up 2.8pc and manufacturing 2.7pc.

Manufacturing also returned to growth after a weak second quarter, increasing by 1.0%.

Mark Carney, governor of the Bank of England, has done nothing to allay these thoughts, warning in September that some perhaps do not fully appreciate that rates could rise "over the coming months".

GDP grew faster than expected in the third quarter.

It will also influence whether the Bank of England decides to raise interest rates at its monetary policy meeting next week.

In response to the figures Chancellor Phillip Hammond said: "The UK economy is successful and resilient".

The expectation of a rate rise has pushed up swap rates - one of the factors that will determine how lenders price their fixed rates. The construction sector remains an area of concern with confirmation that it has once again slipped back into recession.

However, he said such a move would be "largely symbolic" as it merely reverses the quarter-per-cent cut that the MPC made previous year.

Over the past 12 months GDP grew by 1.5pc, the joint-slowest rate since 2013. "The key uncertainty for the central bank is whether it will increase base rates any further in 2018".

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