Economic growth exceeds expectations
Economic growth has accelerated despite a slowdown in the manufacturing sector
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Friday, 19, Oct 2007 10:42
The UK's economy expanded at a faster rate than expected during the third-quarter, in an apparent sign the global credit crunch is yet to dent growth.
Official data released today shows that the UK's GDP grew by 0.8 per cent between July and September, the same level of growth recorded in the previous quarter and above expectations of a slowdown to 0.7 per cent.
Meanwhile the annual rate of GDP growth climbed to 3.3 per cent, up from 3.1 per cent in the previous quarter and the strongest increase recorded since the second quarter of 2004, the figures from the Office for National Statistics (ONS) reveal.
Analysts say the figures make it increasingly unlikely that the Bank of England will opt to cut interest rates in November, with the economy yet to feel the impact of the global credit squeeze.
The central bank had been facing pressure to cut the official cost of borrowing in order to protect the country's economy from the potential fallout of the liquidity crunch, with the US Federal Reserve having recently cut US interest rates for that reason.
However minutes of the Bank of England's latest rate-setting meeting, released earlier this week, stressed there was only "limited evidence" that the problems in the credit markets were impacting upon the real economy and that more time was needed to assess the effect of the market turbulence.
It is likely that today's figures will reinforce the view that the UK's economy has yet to be hit by the credit squeeze, making it increasingly likely that the Bank of England will opt to keep the country's benchmark interest rate on hold at 5.75 per cent when its monetary policymakers meet next month.
Nonetheless additional figures released by the ONS show that total production rose by just 0.2 per cent during the third quarter, compared to an increase of 0.7 per cent in the previous three months.
A slowdown in manufacturing output caused the overall deceleration in growth, with production across the sector up by just 0.2 per cent in the third quarter. In contrast manufacturing production rose by 0.8 per cent in the second quarter.
Stronger growth was recorded in the service sector, which expanded by one per cent between July and September, up from the 0.9 per cent recorded for the previous quarter and driven by the distribution, hotels and restaurants sector.
Meanwhile analysts have warned that economic growth is likely to lose momentum over the coming months "in the face of serious headwinds".
"In particular, consumer spending will be increasingly pressurised by the marked overall rise in interest rates since August 2006, muted real disposable income growth, heightened debt levels and a slowing housing market," warned Global Insight chief economist Howard Archer.
Mr Archer, who warned that exports could also be hit by a slowdown in global economic growth and the impact of the strong pound, said that as such GDP growth was likely to slow from around three per cent in 2007 to 1.9 per cent in 2008.
The warning comes after chancellor Alistair Darling was forced to slash the government's official economic growth forecast earlier this month as a result of the global credit crunch.