Growth figures raise chances of rate rise

Donald Tusk

REUTERSDonald Tusk has said that Brexit can still be reversed

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.

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

If that is the case, it will be the first time rates have risen in a decade, with the pound gaining nearly half a cent on the dollar following the release of today's figures. The Bank's deputy governor said on Monday that a rate rise in November remained an "open question".

UK GDP increased by 0.4% in Q3, beating economists' forecasts for a 0.3% rise and slightly above the growth seen in the first two quarters, according to the latest ONS statistics.

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

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

While many economists echo that view, some think the Bank of England will keep rates where they are.

The ONS data suggested the service industry, manufacturing, auto production and industrial production all helped the slight rise in GDP growth.

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.

Only the construction sector, which accounts for just 6 per cent of national output, struggled.

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

A separate measure of the services sector - the index of services - showed output growth of 0.2 per cent between July and August this year, the ONS said.

Recent comments by BoE rate-setters, interpreted by the market as striking a note of caution with respect to rates, have added to the climate of uncertainty.

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