Growth figures raise chances of rate rise

26 October, 2017, 00:47 | Author: Regina Lloyd

Services increased by 0.4%, the same rate as Q2, and remains the largest contributor to GDP growth, with a strong performance in computer programming, motor trades and retail trade.

Britain's economy picked up speed ever so slightly in the third quarter, official data showed on Wednesday, strengthening expectations for an interest rate hike next month. "That will clarify the impact of today's results on tax, on wages on the housing market and in the now extreme likelihood of a rate rise".

He added: "Today's numbers seem to have increased the likelihood of an interest rate rise next week, with sterling gaining nearly half a cent against the dollar".

The latest figures revealed that the manufacturing industry saw the sharpest spike at a 1% rise.

"However, construction output fell for the second consecutive quarter, although it remains above its pre-downturn peak". The Bank's deputy governor said on Monday that a rate rise in November remained an "open question".

But the service sector - which accounts for nearly 80% of the economy's output - had the biggest overall contribution with a 0.4% growth over the quarter. And future rate rises will be gradual.




"The Bank argues that inflationary pressures could rise sharply if not checked by higher interest rates, and that the current low unemployment rate could lead to much faster wage growth".

Strengthening industrial production figures also contributed to growth, outweighing a decline of 0.7 percent in the construction sector.

While the ECB is not expected to make any changes to interest rates, the euro still looks set to gain as observers suggest that the bank will finally announce plans to begin tapering its quantitative easing programme early next year. "The key uncertainty for the central bank is whether it will increase base rates any further in 2018".

Indeed, although the figures show that the United Kingdom hasn't suffered from a Brexit induced recession as some predicted, this still could be the weakest year of growth since the financial crisis.

British five-year government bond yields also rose to their highest since last year's vote to leave the European Union as markets anticipated a quicker pace of BoE rate rises next year.

Year-on-year growth in the third quarter was 1.5 percent, below the 1.8 percent growth rate recorded over the whole of 2016.

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