Rate rise speculation mounts as Q3 GDP rises to 0.4%

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.

Related topics:  Finance News
Rozi Jones
25th October 2017
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"Markets are currently pricing in an 80% chance of a rate rise next week, but the central bank has disappointed on this score before."

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.

Manufacturing also returned to growth after a weak second quarter, increasing by 1.0%.

Construction has contracted for the second quarter in a row, although the industry still remains well above its pre-downturn peak.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, said this morning that "markets are currently pricing in an 80% chance of a rate rise next week, but the central bank has disappointed on this score before".

He added: "Today’s numbers seem to have increased the likelihood of an interest rate rise next week, with sterling gaining almost half a cent against the dollar. Following recent hawkish comments from the MPC, markets were already regarding a return to 0.5% as a near-certainty.

"Yet if rates do rise as expected, the move will be largely symbolic – though it will be the first rise in over 10 years. A 25 basis point increase merely reverses last year’s cut – which was arguably unnecessary – and returns rates to where they’ve been for the entire post-crisis period. I expect the Bank to proceed with caution from here."

Shilen Shah, Bond Strategist at Investec Wealth & Investment, added: “With the year-on-year GDP figure coming in at 1.5%, all indications suggest the Bank of England is likely to increase base rates by 25bps at its November meeting. The key uncertainty for the central bank is whether it will increase base rates any further in 2018.”

However Ross Andrews, director of fixed rate bond provider, Minerva Lending, said: “We’ve had slight upward revisions on this scale already this year so while it’s welcome that the numbers are running slightly ahead of expectations, it’s not going to set anyone’s newspaper on fire.

“If all we can muster, in terms of a payoff, is an acceleration in economic growth that’s so small you could blink and miss it, the Bank of England could still think better of a rate rise next week."

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