UK economy grows by 0.4% amid pressure for interest rate hike

Economists predicted growth in line with the first and second quarters of 2017. (Photo by Christopher Furlong/Getty Images)
Economists predicted growth in line with the first and second quarters of 2017. (Photo by Christopher Furlong/Getty Images)
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The UK economy unexpectedly rebounded in the third quarter, upping the pressure on the Bank of England to hike interest rates next month.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4 per cent in its initial estimate for July to September this year.

The rise is above expectations of 0.3 per cent, as economists predicted growth in line with the first and second quarters of 2017.

It was largely driven by a robust expansion from the services and manufacturing industries, which countered a dismal display from the construction sector.

However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.7 per cent.

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.

Darren Morgan, the ONS head of national accounts, said: “Growth in the third quarter continued at a similar rate as seen in the first half of the year.

“Services, led by increases in IT, motor trades and retail, continued to drive GDP growth.

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

“However, construction output fell for the second consecutive quarter, although it remains above its pre-downturn peak.”

Britain’s powerhouse services sector, which accounts for around 79 per cent of economic growth, grew by 0.4 per cent in line with the quarter before.

The main drivers came from the business services and finance sector, which climbed by 0.6 per cent for the period.

Industrial production also rose by 1 per cent during the third quarter, boosted by a 1 per cent jump from manufacturing and a 1.5 per cent rise from mining and quarrying.

It helped to counter a lacklustre performance from the construction sector, which fell by 0.7 per cent between July and September - the lowest drop since the third quarter of 2012.

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.

On an annual basis, GDP expanded by 1.5 per cent in the third quarter, compared to the same three months in 2016.