Economy

Rate rise speculation mounts as Q3 GDP rises to 0.4%

Rate rise speculation mounts as Q3 GDP rises to 0.4%

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.

The Bank of England is widely expected to return rates to 0.5% from 0.25% after its policy meeting next week, the first hike in borrowing costs in over a decade, though there are doubts about whether that will be the start of a steady tightening cycle. "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".

However the report was a little gloomier for Britain's builders, as it showed that the construction sector shrank for the second quarter in a row, meaning that the sector has now entered a recession.

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

"We have a successful and resilient economy which is supporting a record number of people in employment", said finance minister, Philip Hammond. And future rate rises will be gradual.

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The biggest contributor to growth in the third quarter was the service sector, which expanded by 0.4%. The Bank's deputy governor said on Monday that a rate rise in November remained an "open question".

"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".

"Despite the Brexit headwinds, United Kingdom growth is good enough to give the (BoE) the green light for a rate rise next Thursday", said Ian Stewart, chief economist at Deloitte.

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

The services sector grew overall by 0.4% in the third quarter, while there was also positive news for the manufacturing and agricultural sectors, which increased by 1% each. It is possible that if inflation proves stubborn, unemployment continues to remain low, wages start to increase more rapidly and growth strengthens, then rates may rise a little quicker than markets now expect.