Economy expands more strongly than expected

Britain's economy expanded more strongly than expected in the third quarter of the year, official data showed today, cementing expectations of another interest rate rise from the Bank of England early next month.

The Office for National Statistics reported that gross domestic product - the broadest measure of the economy - grew a healthy 0.7% in the July to September period compared to the previous three months and was up 2.8% on a year earlier - the strongest performance since the third quarter of 2004.

The service sector, which accounts for about three-quarters of the economy, grew more slowly at 0.8% on the quarter but the manufacturing sector continued its strong recovery and grew by 0.7%. Manufacturing's annual growth rate is now its strongest for two years.

The economy has now expanded by 0.7% in each of the past four quarters. That pace is widely considered to be faster than the economy can grow for very long without stoking inflation.

The Bank of England raised interest rates by a quarter point to 4.75% in August and is widely predicted by City analysts to raise them to 5% next month. There is even talk that it may raise them to 5.25% in the months ahead if the economy does not show signs of slowing down.

"We have now had four consecutive quarters of above trend growth. Typically, the MPC has raised rates when growth has been at or above 0.7%," said Amit Kara, economist at UBS.

"If activity continues to expand at rates.....continued below

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similar to Q3, we think it likely that the MPC will raise policy rates further. However, we expect growth to ease over the next couple of quarters in line with recent surveys."

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