United Kingdom growth fuels speculation of interest rate rise

United Kingdom growth fuels speculation of interest rate rise

United Kingdom growth fuels speculation of interest rate rise

The growth rate is similar to that in the first two quarters, with the main contributors being business services and the finance sector, according to the Office for National Statistics (ONS).

The productivity puzzle remains, with GDP per person lagging behind the headline growth rate at 0.3 per cent.

That caused the pound to jump nearly 1 per cent against the dollar to $1.326, while it was 0.6 per cent up versus the euro at €1.123.

Against those headwinds, industrial production has been on a much better footing in Q3, so the overall growth estimate will depend on the extent to which the services sector rebounded in August and September. "Manufacturing also boosted the economy with an improved performance after a weak second quarter", said ONS Head of National Accounts Darren Morgan.

"The GDP figures revealed that the economy regained a bit of momentum in the third quarter and have probably sealed the deal on an interest rate hike next week", said Ruth Gregory, UK economist at Capital Economics.

The official figures are released as the Bank of England is preparing to discuss whether to raise interest rates for the first time in ten years in its monetary policy meeting next week on November 2nd.

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The figures come just over a week before the Bank of England makes a decision whether to raise rates. "Philip Hammond is expected to announce measures to address the problem in his autumn Budget next month - though whether they will work is open to debate".

Responding to the GDP announcement, the Chancellor said: "We have a successful and resilient economy which is supporting a record number of people in employment".

"We continue to see the highest level of volatility from the office sector as many global firms now headquartered in the United Kingdom put decisions on hold over their long-term office space requirements".

One rate rise, or more?

Despite Wednesday's gains, sterling is still trading well down on its value before last year's Brexit vote, when £1 would have bought $1.50 or €1.31. That trend would likely reverse if the BoE increases in the base rate back to its previous level.

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