Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

UK economy gains pace, puts BoE rate hike firmly on track

Economic IndicatorsOct 25, 2017 13:25
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. usTwo shoppers sit with their bags on Oxford Street in London

By Andy Bruce and Costas Pitas

LONDON (Reuters) - Britain's sluggish economy perked up slightly during the past three months, an unexpected boost that clears the way for the Bank of England to raise interest rates next week for the first time in a decade.

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

Sterling climbed almost a full percentage point against the U.S. dollar on the figures, which beat the average forecast for growth of 0.3 percent in a Reuters poll of economists.

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.

Britain performed much better than most economists expected immediately after last year's vote to leave the European Union, and it was one of the fastest-growing major advanced economies in 2016.

But it slipped to the bottom of the pack earlier this year, posting its worst first-half performance since 2012, largely due to higher inflation caused by the pound's fall after the Brexit vote, at a time when its peers have enjoyed robust growth,

While Wednesday's figures are a small boost for under-pressure Chancellor Philip Hammond ahead of his November budget, they do not alter the broad picture of an economy dogged by poor productivity and squeezed living standards.

"Despite the weak outlook, the Bank of England will now almost certainly raise the Bank Rate by 25 basis points ... on 2nd November," said Daniel Vernazza, chief UK economist at UniCredit.

A Reuters poll published on Tuesday showed the Bank is widely expected to raise rates to 0.50 percent from 0.25 percent on Nov. 2, due to concerns that the economy cannot grow as fast as it used to without generating excess inflation. [BOE/INT]

Financial markets nudged up the chance of a move to nearly 90 percent from just over 80 percent before the data.

Last month the Bank said Wednesday's preliminary data from the Office for National Statistics (ONS) was likely to show 0.3 percent growth, though it might be stronger due to improving consumer demand.

In the past, Britain's economy typically grew by 0.5-0.6 percent a quarter but the Bank and other economists have indicated that the sustainable growth rate may have fallen.

GRAPHIC - Comparison of UK and euro zone economic performance:


Hammond told broadcasters the growth figures were "solid" and proof of the fundamental strength of an economy that since the referendum had often made forecasters look too pessimistic.

In a separate statement, he said he was focused on boosting productivity - arguably Britain's biggest economic problem - in order to create more higher-wage jobs.

Next month's budget would consider ways to support high-growth firms short of finance, the housing sector and consumers, but the economic situation placed limits on what could be done, Hammond added.

Britain's budget watchdog has said it expects to chop its forecasts for productivity growth in coming years, suggesting the economy will have less room to grow without generating inflation - a diagnosis shared by BoE Governor Mark Carney.

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

Nonetheless, most economists polled by Reuters think it would be a mistake for the Bank to hike interest rates now, in part because of the economic uncertainty generated by the Brexit process.

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 car production.

In year-on-year terms, third-quarter growth was unchanged at 1.5 percent, also slightly stronger than analysts had expected.

Britain's dominant services maintained its momentum from the previous quarter, the ONS said, while industrial output expanded at its fastest rate in more than a year.

Construction continued to struggle, however, contracting by 0.7 percent on the quarter - its sharpest fall since the third quarter of 2012.

"We would urge the (BoE) to proceed with caution on raising rates, as tightening monetary policy amid the current economic and political uncertainty could weaken growth," said Suren Thiru, head of economics at the British Chambers of Commerce.

The preliminary estimates of GDP do not include a breakdown of spending, and are heavily based on estimated data.

UK economy gains pace, puts BoE rate hike firmly on track

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email