U.K. economy grows above expectations in Q3, MPC likely to sanction 0.25 point rise in interest rate

The U.K. economic growth rate picked up in the September quarter. The preliminary estimate of the third quarter growth showed a quarterly rise of 0.4 percent, coming in above consensus expectations. This is an acceleration from the 0.3 percent quarter-on-quarter rise seen in both the first quarter and the second. However the annual growth rate remained unchanged from the second quarter at 1.5 percent.

The dominant services sector continues to drive the U.K. economy. The sector grew 0.4 percent sequentially in the third quarter. However, industrial sector also contributed positively to the third quarter growth, while construction sector was a modest drag on the growth as the sector contracted in the quarter. The monthly index of services published along with the GDP released indicated growth rebounding to 0.2 percent month-on-month in August after an upwardly revised -0.1 percent sequential growth in July.

According to ONS, the industrial sector is assumed to have grown further in September, taking the overall rise in the industrial output over the quarter to 1 percent quarter-on-quarter. The construction sector dropped 0.7 percent in the third quarter, with the output in September estimated to have dropped 1 percent sequentially.

Given that the MPC announcement is next week, the report released today will give the committee some comfort in the near-term growth trends, noted Lloyds Bank in a research report. The U.K. economic growth in the third quarter is above the central bank’s estimate of 0.3 percent quarter-on-quarter made during its last month’s policy meeting.

“In our view, today’s data represent another hurdle cleared for the Bank of England, as such, this strengthens our view that the MPC will sanction a quarter-point rise in Bank Rate at next week’s policy meeting”, added Lloyds Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 118.368, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -26.6246. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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