U.K. Economy Grows at Strongest Pace in Three YearsJennifer Ryan
U.K. economic growth accelerated to its fastest pace in more than three years in the third quarter as the recovery continued across all main industries.
Gross domestic product rose 0.8 percent, up from 0.7 percent growth between April and June and the most since the second quarter of 2010, the Office for National Statistics said in London today. The increase was in line with the median of 40 forecasts in a Bloomberg News survey.
Bank of England Governor Mark Carney presents new quarterly forecasts on Nov. 13 and there are growing expectations officials will concede interest rates may have to increase earlier than forecast in August as momentum builds. Carney said yesterday there was “traction” in the economy.
“I’m a little surprised it’s only 0.8 percent, although it’s a very good number,” said Brian Hilliard, an economist at Societe Generale SA in London and a former BOE official. “It does reinforce the recovery is really taking hold. It should make us a little cautious about the fourth quarter because this is probably the sweet spot in the third quarter. It will rein in expectations a little bit.”
The pound was trading at $1.6189 as of 11:32 a.m. London time, down 0.1 percent on the day. The benchmark 10-year gilt yield was little changed at 2.64 percent.
Britain is the first of the Group-of-Seven nations to report GDP for the third quarter. The country is experiencing its slowest recovery in a century, having recouped only two thirds of the output lost during the financial crisis.
GDP in the third quarter was 2.5 percent below its pre-recession high in the first quarter of 2008. Only Italy is further behind in the G-7, while the U.S., Germany and Canada are back above their previous peak levels of output.
Under its forward-guidance policy announced Aug. 7, the Bank of England has pledged to keep the benchmark rate at 0.5 percent at least until unemployment falls to 7 percent, subject to caveats on inflation and financial stability. It projected that to occur at the end of 2016.
Robust job creation over the summer, which has cut the jobless rate to 7.7 percent from 7.8 percent, has surprised BOE officials, who are now preparing to revise their forecasts for growth, unemployment and inflation.
Former policy maker Andrew Sentance told Bloomberg Television today that the Bank of England may say the jobless rate will reach 7 percent by late 2015, though he said officials should be preparing the ground for an interest-rate increase before then with inflation at risk of climbing above 3 percent next year. A YouGov Plc survey yesterday showed a jump in inflation expectations after energy suppliers raised prices by about 10 percent.
Carney, who played down the rise in inflation expectations in comments to reporters late yesterday, said the recovery is strengthening but there was no question of withdrawing stimulus until it has “really gained that traction.”
Today’s first estimate of third-quarter growth is based on about 44 percent of total data that will inform the final reading. Second-quarter GDP was revised up by 0.1 percentage point after the initial estimate.
In Japan, prices ended four years of declines, signaling progress in Prime Minister Shinzo Abe’s campaign to stamp out deflation and drive a sustained economic revival.
Prices excluding energy and fresh food were unchanged from a year earlier, after sliding every month since December 2008, the statistics bureau said today in Tokyo. That matched the median forecast of 19 economists in a Bloomberg News survey.
Elsewhere today in the Asia-Pacific region, South Korea said the economy expanded a more-than-forecast 1.1 percent in the third quarter from the previous period. The Philippines said imports rose 6.9 percent in August from a year earlier, a slower pace than in July.
German business confidence unexpectedly decreased for the first time in six months in October. The Ifo institute’s business climate index, based on a survey of 7,000 executives, fell to 107.4 from 107.7 in September. That compares with a median forecast of 108 in a Bloomberg News survey of 39 economists.
U.S. data due today include durable-goods orders for September and October consumer confidence.
The U.K. economy expanded 1.5 percent in the third quarter from a year earlier, up from 1.3 percent in the previous three months. For a second consecutive quarter, services, production and manufacturing, construction and agriculture all expanded. The International Monetary Fund predicts U.K. growth of 1.4 percent this year.
The economy has grown 3 percent since Prime Minister David Cameron took office in 2010. He’s counting on keeping the momentum as his Conservative Party trails behind the Labour opposition with 1 1/2 years to go before the next election.
“Today’s encouraging GDP growth figures are another sign we are turning a corner -- building an economy for hardworking people,” Cameron said on Twitter today.
His strategy includes easing deposit requirements for Britons struggling to get onto the property ladder. The program has stoked warnings of a property bubble and its effects were evident in today’s figures, with services contributing three quarters of the growth in the third quarter.
Services, the largest part of the economy, expanded 0.7 percent from the second quarter, the most since the third quarter of 2012, and output is now back above its peak in early 2008. Growth was led by business services and finance, in particular architectural and engineering services. The next strongest category was distribution, hotels and restaurants, which was driven by retail sales.
Construction grew 2.5 percent, the most since 2010. Industrial product rose 0.5 percent, with manufacturing growing 0.9 percent.
Exports and business investment are lagging behind, and consumers may struggle to continue driving growth as inflation of 2.7 percent runs at almost four times the pace of wage increases.
“Whilst consumer confidence may be showing signs of improvement, we expect that household incomes will remain under pressure,” said Michael Sharp, chief executive officer of London-based retailer Debenhams Plc. “We remain cautious about the strength and pace of any consumer recovery in 2014.”