United Kingdom economy locked onto low growth trajectory

GETTYThe GBP  USD exchange rate may trend lower again as the ONS publishes the UK’s latest GDP estimate

GETTYThe GBP USD exchange rate may trend lower again as the ONS publishes the UK’s latest GDP estimate

Britain's economy picked up slightly in the three months through September, official figures showed Wednesday, making it more likely that the Bank of England could raise interest rates next month for the first time in a decade. In the three months to August, services output rose 0.4 percent from the previous quarter and 1.7 percent from a year ago.

It comes as the Bank's Monetary Policy Committee (MPC) mulls whether to raise interest rates from record lows of 0.25% in November, as inflation continues to soar.

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

This beats economists' forecasts for a 0.3% rise and improves on the growth seen in the first two quarters.

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

One rate rise, or more?

She acknowledged growth was not particularly broad based, but was encouraged that industrial production appears to be reflecting the strength of soft data surveys, and that services was holding steady in the face of the ongoing real pay squeeze.

"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". 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.

Paul Johnson, director of the Institute of Fiscal Studies, added: "The problem is that [productivity] number hasn't risen over the last 10 years at all".

"For personal investors, rising rates - and the impact that has on sterling - will likely have a dampening impact on the markets in the short-term, and we saw that this morning with sterling strengthening slightly and the market falling marginally as an immediate response to the data".

According to the ONS, the figures bring the estimated full year growth to 1.5% - meaning that the economy is expanding at a slower rate than in 2016, which stood at an annualised rate of 1.8%.

He recently warned that Brexit had left the United Kingdom economy under a "cloud of uncertainty", while the International Monetary Fund also raised the growth outlook for every advanced economy aside from Britain because of its European Union divorce.

Ben Brettell, senior economist at Hargreaves Lansdown, said: "A slightly improved performance from the United Kingdom economy in Q3, with output growing by 0.4%".

The eurozone's growth rate also caught up with the United Kingdom in 2016, and has outpaced the United Kingdom so far this year.

The former head of business lobby the CBI said: "The UK economy has grown a bit in the last five years and we have created lots of jobs, but they have been low productivity jobs".

Latest News