Rate rise speculation mounts as Q3 GDP rises to 0.4%

Bank of england

Following the higher-than-anticipated results, the pound gained nearly 0.8 of a cent against the dollar to $1.32 at the time of writing, indicating that City traders are betting on a rate hike next week.

Earlier, preliminary data from the Office for National Statistics said that GDP grew by 0.4% in the third quarter of 2017, above expectations of 0.3% growth.

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.

After a weak second quarter, manufacturing climbed 1 percent. "Despite the weak outlook, the Bank of England will now nearly certainly raise the Bank Rate by 25 basis points on 2nd November", said Daniel Vernazza, chief United Kingdom economist at UniCredit.

"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".

"My focus now, and going into the budget, is on boosting productivity so that we can deliver higher-wage jobs and a better standard of living for people across the country", he said.

While many economists echo that view, some think the Bank of England will keep rates where they are. "The key uncertainty for the central bank is whether it will increase base rates any further in 2018".

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.

The jump in growth over the last quarter appears to have largely been attributed to the UK's service sector, with robust growth in Britain's most significant wealth generating sector helping to offset a decline in other areas.

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 auto production.

Tej Parikh, senior economist at the Institute of Directors, said although it was just a first estimate, the 0.4% growth between July and September should be welcomed as a sign of resilience in British businesses.

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