United Kingdom growth accelerates in third quarter

Posted October 27, 2017

This was a rise of 1.5 percent year-on-year, according to the Office for National Statistics, with services and manufacturing being the main drivers of growth, as well as the auto sector.

It may not be a great picture either; economists predict that GDP rose by just 0.3% during the quarter, significantly below the long-term trend growth.

Last week, the ONS said retail sales fell more than expected in September as Britons reined in their spending, with quarterly growth falling to a four-year low.

Analysts suggest that BoE is likely to return rates to 0.50 per cent from 0.25 per cent after its next meeting, due to concerns that the economy can not grow as fast as it used to without generating excess inflation.

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Following the higher-than-anticipated results, the pound gained nearly 0.8 of a cent against the dollar to $1.32 at the time of writing, indicating that City traders are betting on a rate hike next week.

"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 returned to growth in Q3 at 1 per cent, but construction contracted for a second quarter.

Any potential rate hike by the Bank's Monetary Policy Committee when it meets on 2 November is likely to be just 0.25 per cent, but would nonetheless have an impact on mortgage payments and savings.

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Today's healthcheck on the United Kingdom economy is particularly important, as chancellor Philip Hammond weighs up what tax and spending changes to make in November's budget.

Over the past 12 months GDP grew by 1.5pc, the joint-slowest rate since 2013. "Both of these factors are expected to continue weighing down on growth over the rest of this year and into 2018".

A rate rise by the BoE would act to curb inflation. "That has yet to be seen, and the latest weak growth data suggests that productivity growth will also remain poor, making it unlikely that pay growth will rise much above inflation anytime soon". So, while symbolically important, it's unlikely the first rate hike in ten years will be catastrophic for the economy.

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