The pound is climbing after UK GDP beats

Javier Stokes
October 26, 2017

While falling short of the strong growth rates enjoyed by eurozone countries earlier this year, British economic growth picked up to 0.4% in the July-September period from 0.3% in the second quarter, official data showed yesterday.

'With the latest GDP data confirming that the United Kingdom economy is still in a challenging period, these figures are likely to weigh on whether the MPC will raise interest rates next month.

Britain's pound climbed over 0.5% against the dollar today after data showed the economy picking up speed, bolstering expectations that the Bank of England will raise interest rates next week.

"However, construction output fell for the second consecutive quarter, although it remains above its pre-downturn peak". And future rate rises will be gradual.

Chancellor Philip Hammond said: "We have a successful and resilient economy which is supporting a record number of people in employment".

Financial markets nudged up the chance of a move to almost 90% from just over 80% before the data. The Bank's deputy governor said on Monday that a rate rise in November remained an "open question".

Britain's powerhouse services sector, which accounts for around 79 per cent of economic growth, grew by 0.4 per cent in line with the quarter before.

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The ONS data showed the vast services industry was behind the bulk of Britain's economic expansion in the third quarter, but manufacturing also contributed, helped by a rebound in vehicle production.

The real question will be how rapidly rates rise through next year going back above the level they were cut to in March 2009 following the financial crisis.

"Services, led by increases in IT, motor trades and retail, continued to drive GDP growth".

In the short-term, a further argument in favour of higher rates might come from solid bank lending figures from industry association UK Finance.

United Kingdom economist Ruth Gregory, of research company Capital Economics, said the figures "have probably sealed the deal on an interest rate hike next week".

The eurozone's growth rate also caught up with the United Kingdom in 2016, and has outpaced the United Kingdom so far this year.

According to the ONS, the figures bring the estimated full year growth to 1.5% - meaning that the economy is expanding at a slower rate than in 2016, which stood at an annualised rate of 1.8%.

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