UK growth 'will bring forward interest rate rise'

UK growth 'will bring forward interest rate rise'

The Office for National Statistics last week revealed that the UK economy expanded by 0.8%  in the third quarter of 2013. This builds on 0.7% growth in the second quarter of 2013 and represents the fastest quarterly growth the UK has seen since Q2 2010.

Encouragingly, growth in the economy was broad-based, with all the major industrial groups (agriculture, production, construction and services) growing strongly. Agriculture expanded  by 1.4% quarter on quarter, production industries by 0.5% and construction by 2.5%. Meanwhile growth of 0.7% in the UK’s services sector was enough take services output to its highest ever recorded level.

Colin Edwards, Senior Economist, Centre for Economics and Business Research, said: "The confirmation of an acceleration in economic growth follows an economic outlook which has continued to brighten throughout 2013.

"Consumer and business confidence have reached near record highs, the housing market has been picking up, lending to both consumers and businesses has increased and even the enduring malaise in the euro zone appears less ominous. Against this backdrop, growth in the UK has gathered pace and looks on course  to reach 1.6% for 2013 as a whole.  With this momentum showing no signs of slowing, the UK is likely to achieve its highest rate of growth since the financial crisis in 2014.

"There are still lingering concerns regarding the shape of this recovery; despite surging business confidence, investment remains weak, at well below its pre financial crisis share of GDP. This leaves the economy more dependent on consumption to drive growth at a time when earnings growth remains subdued –increasing by just 0.8% year on year according to the latest data.

"Nevertheless, in the short term at least, the UK economy is powering ahead. This leaves questions around the path of monetary policy in the UK. At present, the Bank of England has committed to a 7.0% unemployment ‘waypoint’ at which it will consider raising interest rates. At the time of the policy announcement, back in August, the Bank believed this would not happen until 2016.

"However, the striking gear change in the UK since then suggests unemployment could fall from its current rate of 7.7% much faster – Cebr forecast this threshold is likely to be reached by early 2015. The Bank therefore has a key decision to make ahead of its November inflation report: either expectations for a rise in interest rates must be brought forward, or else the emphasis of forward guidance must change."