United Kingdom economy grows by 0.4% amid pressure for interest rate hike

Canary Wharf Ice Rink

Following the higher-than-anticipated results, the pound gained nearly 0.8 of a cent against the dollar to $1.32 at the time of writing, indicating that City traders are betting on a rate hike next week.

The UK's quarterly gross domestic product growth rose to 0.4% in the third quarter from 0.3% in the second, beating expectations for 0.3% growth.

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.

"Manufacturing also boosted the economy with an improved performance after a weak second quarter".

Markets are now pricing in an 80% chance of a rate rise next week, but the central bank has disappointed on this score before.

The ONS said following growth of 0.4 percent GDP has grown for 19 consecutive quarters.

Britain's budget watchdog has said it expects to chop its forecasts for productivity growth in coming years, suggesting the economy will have less room to grow without generating inflation - a diagnosis shared by BoE governor Mark Carney.

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Nonetheless, most economists polled by Reuters think it would be a mistake for the BoE to hike interest rates now, in part because of the economic uncertainty generated by the Brexit process.

The jump in growth over the last quarter appears to have largely been attributed to the UK's service sector, with robust growth in Britain's most significant wealth generating sector helping to offset a decline in other areas.

On a yearly basis, economic growth held steady at 1.5 percent in the third quarter, which was in line with expectations.

In the short-term, a further argument in favour of higher rates might come from solid bank lending figures from industry association UK Finance. Production and agriculture both grew by 1.0% but contributed less percentage points to overall GDP growth due to their weighting.

A separate measure of the services sector - the index of services - showed output growth of 0.2 per cent between July and August this year, the ONS said.

The preliminary estimates of GDP do not include a breakdown of spending, and are heavily based on estimated data.

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