Taken from Bloomberg:
The U.K. economy grew more than forecast in the third quarter, which may add fuel to speculation that the Bank of England is about to raise interest rates for the first time in a decade.
Gross domestic product rose 0.4 percent in the three months, beating the 0.3 percent forecast in a Bloomberg survey. Services rose 0.4 percent, industrial production jumped 1 percent while construction shrank the most in five years.
The pound climbed after the report, which is the last major hard data BOE officials will get on the health of the economy before their crucial meeting next week. With inflation at the fastest in more than five years, Governor Mark Carney has said tightening may be needed within months, and economists and traders expect the bank to increase borrowing costs on Nov. 2.
The pound was 0.2 percent higher at $1.3164 as of 9:31 a.m. London time.
Even though the latest quarter was better than expected, growth is still running at a weaker pace than it was in 2016. The pace is also slower than when the BOE has raised interest rates in the past, though Carney’s arguments for a hike are mainly centered on the erosion of slack.
Some have warned that a hike could be a policy mistake given the U.K’s relatively sluggish growth and Brexit-related uncertainty that’s clouding the outlook. They also argue that inflation is being driven by the weaker pound, rather than being domestically generated.
But in Carney’s assessment, Brexit has crimped U.K. potential growth, lowering the level of expansion the economy can take without overheating.
Rate Doubt
Traders are now pricing in about an 80 percent chance of a BOE rate increase from 0.25 percent next week, though recent comments from some BOE officials suggest the decision is not yet cut and dried.
The GDP figures from the Office for National Statistics on Wednesday are a first estimate and based on about 44 percent of the data that will ultimately be available. On an annualized basis, comparable to U.S. data, the U.K. economy grew 1.6 percent in the third quarter. The U.S. is forecast to have expanded 2.5 percent, according to a Bloomberg survey before data on Friday.
The U.K.’s comparatively tepid growth has left it the odd one out in the global upswing. While the IMF raised its forecasts for almost every advanced economy the month, the U.K. outlook was left unchanged. At 1.7 percent this year and 1.5 percent in 2018, it will grow at just half the global average.
The U.K. economy grew more than forecast in the third quarter, which may add fuel to speculation that the Bank of England is about to raise interest rates for the first time in a decade.
Gross domestic product rose 0.4 percent in the three months, beating the 0.3 percent forecast in a Bloomberg survey. Services rose 0.4 percent, industrial production jumped 1 percent while construction shrank the most in five years.
The pound climbed after the report, which is the last major hard data BOE officials will get on the health of the economy before their crucial meeting next week. With inflation at the fastest in more than five years, Governor Mark Carney has said tightening may be needed within months, and economists and traders expect the bank to increase borrowing costs on Nov. 2.
The pound was 0.2 percent higher at $1.3164 as of 9:31 a.m. London time.
Even though the latest quarter was better than expected, growth is still running at a weaker pace than it was in 2016. The pace is also slower than when the BOE has raised interest rates in the past, though Carney’s arguments for a hike are mainly centered on the erosion of slack.
Some have warned that a hike could be a policy mistake given the U.K’s relatively sluggish growth and Brexit-related uncertainty that’s clouding the outlook. They also argue that inflation is being driven by the weaker pound, rather than being domestically generated.
But in Carney’s assessment, Brexit has crimped U.K. potential growth, lowering the level of expansion the economy can take without overheating.
Rate Doubt
Traders are now pricing in about an 80 percent chance of a BOE rate increase from 0.25 percent next week, though recent comments from some BOE officials suggest the decision is not yet cut and dried.
The GDP figures from the Office for National Statistics on Wednesday are a first estimate and based on about 44 percent of the data that will ultimately be available. On an annualized basis, comparable to U.S. data, the U.K. economy grew 1.6 percent in the third quarter. The U.S. is forecast to have expanded 2.5 percent, according to a Bloomberg survey before data on Friday.
The U.K.’s comparatively tepid growth has left it the odd one out in the global upswing. While the IMF raised its forecasts for almost every advanced economy the month, the U.K. outlook was left unchanged. At 1.7 percent this year and 1.5 percent in 2018, it will grow at just half the global average.
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