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BoE interest rate hike likely as GDP grows 0.4%

27 October, 2017, 00:40 | Author: Samuel Sharp
  • Mark Carney will now come under pressure to raise interest rates

However, the main drivers came from the business services and finance sector, which increased by 0.6%.

Peter Dixon, economist at Commerzbank, said that the United Kingdom economy is "running around 0.5 percent per year more slowly than prior to the European Union referendum".

The news will offer some relief in an economy which has suffered a slow 2017 so far, after quarterly growth remained flat at 0.3 per cent in the first half of the year.

"Today's numbers seem to have increased the likelihood of an interest rate rise next week, with sterling gaining nearly half a cent against the dollar".

But the service sector - which accounts for nearly 80% of the economy's output - had the biggest overall contribution with a 0.4% growth over the quarter.

It is also highly probable that, even with a recovery in September, for the quarter as a whole the construction sector will end up being a drag on growth.


"The GDP figures revealed that the economy regained a bit of momentum in the third quarter and have probably sealed the deal on an interest rate hike next week", said Ruth Gregory, UK economist at Capital Economics.

In response to the figures Chancellor Phillip Hammond said: "The UK economy is successful and resilient".

The Monetary Policy Committee (MPC), led by Bank of England Governor Mark Carney (pictured), will meet next on 2 November.

"The figure may also provide support to the Governor of the Bank of England who is looking to raise interest rates this year and a stronger United Kingdom economy should increase the likelihood of this happening".

The expectation of a rate rise has pushed up swap rates - one of the factors that will determine how lenders price their fixed rates. So, while symbolically important, it's unlikely the first rate hike in ten years will be catastrophic for the economy.

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. That trend would likely reverse if the BoE increases in the base rate back to its previous level.

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