United Kingdom growth fuels speculation of interest rate rise


Production and agriculture both grew by 1.0% but contributed less percentage points to overall GDP growth due to their weighting.

The pound was up 0.36% per cent against the USA dollar to £1.3179 and 0.27% against the Euro to £1.1188 on Tuesday morning as news of the UK's better than expected growth broke.

The largest contributor to growth in services was the business services and finance sector, which grew by 0.6%, while the positive contribution from production (up 1% in the quarter) was attributed to strength in the vehicle manufacturing output in July, which increased by 3.8%.

The British pound rose shortly after today's growth report, going up 0.25 percent against the U.S. dollar to $1.317.

PwC's chief economist John Hawksworth said, "These numbers do not change the big picture for the United Kingdom, which is of an economy that has slowed due to higher inflation linked to the weak pound and Brexit-related uncertainty dragging on business investment".

However, it sent the UK FTSE's 100 index tumbling 0.4% to 7,496 as stronger economic growth fuels speculation about an interest rate rise at the Bank of England.

Any potential rate hike by the Bank's Monetary Policy Committee when it meets on 2 November is likely to be just 0.25 per cent, but would nonetheless have an impact on mortgage payments and savings.

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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. The construction sector remains an area of concern with confirmation that it has once again slipped back into recession.

One rate rise, or more?

"Yet if they do rise as expected, the move will be largely symbolic".

Over the past 12 months GDP grew by 1.5pc, the joint-slowest rate since 2013.

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.

"If the MPC doesn't raise interest rates on 2 November following this preliminary GDP estimate, Mark Carney will be branded as the central banker who cried wolf once too often".