The UK economy has grown by 0.4% between July and September and surpassed expectations of flat growth of 0.3%, sparking a rise in the pound.
Sterling is enjoying a stronger run against the dollar, up 0.4% to $1.31 as investors are optimistic that the surprise growth will encourage the Bank of England to hike interest rates next month.
According to the Office for National Statistics, the services industry increased by 0.4% and remained the largest contributor to growth thanks to a strong performance in computer programming, motor and retail trade.
Manufacturing returned to growth with a 1% rise after a weak second quarter, but construction continued to contract, although this was still above its pre-downturn peak in 2008 to 2009.
WILL INTEREST RATES RISE?
The market is choosing to overlook Bank of England deputy governor John Cunliffe’s comments on Tuesday that it was an ‘open question’ whether interest rates would rise this year.
PricewaterhouseCoopers chief economist John Hawksworth says the latest data does not change the ‘big picture’ for the UK economy, which has slowed due to higher inflation and uncertainty from Brexit negotiations.
However, he concedes we should not ‘overdo the gloom’ as no recent statistics suggest the slowdown will turn into a recession and there is nothing in today’s data to stop an interest rate rise.
Cavendish Asset Management fund manager Paul Mumford says the ‘zero rate era can’t go on forever’ and that interest rates are a tool to curb inflation by reducing demand.
He questions whether it is an appropriate move to hike rates now as car sales are falling and debt is rising.
