UK Q3 GDP growth beats expectations

Canary Wharf Ice Rink

Following a 0.3% rise in both Q1 and Q2, the ONS figure was higher than the 0.3% growth City economists had forecasted.

However, although the GDP data was better than expected it is not strong and there are pockets of weakness that could come under even more pressure if the BoE does hike interest rates. "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".

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 uptick in Q3 growth was largely driven by a firmer rise in manufacturing and business services & finance output.

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

Responding to the GDP announcement, the Chancellor said: "We have a successful and resilient economy which is supporting a record number of people in employment".

A rate rise by the BoE would act to curb inflation.


"We would like to see more broad-based growth, and are concerned, for example, that the construction sector is now in recession". 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.

The ONS added output from the services sector increased by 0.4%, the same rate as the previous three months and remained the largest contributor to GDP growth, while the manufacturing sector returned to growth.

United Kingdom stocks failed to gain any traction as equity investors weighed the likely impact of any impending rate hikes on the market.

"Despite today's marginal improvement, growth has been relatively lacklustre this year".

Despite Wednesday's gains, sterling is still trading well down on its value before last year's Brexit vote, when £1 would have bought $1.50 or €1.31.

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".

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