United Kingdom economic growth strengthens in third quarter to 0.4 per cent

Robyn Valdez
October 27, 2017

Shilen Shah, Bond Strategist at Investec Wealth & Investment, said: "Third quarter UK GDP accelerated to 0.4%, above the consensus figure of 0.3%, with some indications that the dominant services sector continues to be in expansionary territory".

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 UK economy grew by 0.4% between June and September, surprising the City and causing the pound to surge as markets price-in a now near inevitable interest rate rise.

The British pound rose shortly after today's growth report, going up 0.25 percent against the USA dollar to $1.317.

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"Export-oriented manufacturing, the largest industrial sub-sector expanded by 1.0 per cent. United Kingdom export-related sectors now benefit from the healthy expansions in the UK's major trading partners, the U.S. and the eurozone, and a tailwind from the weaker sterling, which is down 12 per cent on a trade-weighted basis since the Brexit vote". Manufacturing also boosted the economy with an improved performance after a weak second quarter.

The better than expected GDP figures, combined with rising inflation, has led to predictions that the Bank of England's Monetary Policy Committee (MPC) will raise interest rates when it meets on 2 November.

There was no change to the annual rate of growth which remained at 1.5%, beating market expectations of a dip to 1.4%.

Britain's powerhouse services sector, which accounts for around 79% of the United Kingdom economy, grew by 0.4% during the third quarter, the same rate as the three months before.

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One rate rise, or more?

"It seems unlikely that the consumer-driven economy can sustain itself with inflation outpacing wage growth, and, as such, maintaining the low interest rate environment remains important", he added.

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

"If the MPC doesn't raise interest rates on 2 November following this preliminary GDP estimate, Mark Carney will be branded as the central banker who cried wolf once too often".

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