The U.K. economy grew by 0.4 percent in the third quarter of this year, beating market estimates, and potentially boosting the chances of a rate hike by the Bank of England.
This was a rise of 1.5 percent year-on-year, according to the Office for National Statistics, with services and manufacturing being the main drivers of growth, as well as the auto sector.
In the second quarter, the U.K.'s gross domestic product (GDP) rose 0.3 percent (quarter-on-quarter) in the three-month period. Prior to the release, sterling was trading very slightly down against the U.S. dollar at $1.312, but quickly turned higher on the data. It was trading at 1.3168 against the greenback at 10:00 a.m. London time.
The better-than-expected data suggests that the Bank of England's anticipated move to raise interest rates to 0.5 percent in November remains on course. The U.K. central bank dropped the figure to 0.25 percent in the wake of the U.K.'s vote to exit the European Union in June 2016.
"We're at a point now where no rate hike on November 2 could disappoint the markets and lead to a drop in the value of the pound," said Danielle Haralambous, U.K. analyst at the Economist Intelligence Unit, following the data release. "If there is a rate hike, we believe it will be a one-off, returning the policy rate to 0.5 percent," she added.
However, despite coming in higher than expected, "growth was not particularly broad based," warned Ruth Gregory, U.K. economist at Capital Economics. Gregory pointed out that construction output fell by 0.7 percent quarter-on-quarter, though industrial production was up by a "strong" 1 percent.
According to Gregory, the U.K. economy looks set to grow by roughly 1.6 percent this year, and approximately 2 percent in 2018.
Peter Dixon, economist at Commerzbank, said that the U.K. economy is "running around 0.5 percent per year more slowly than prior to the EU referendum." He added that it was unclear "whether this is a permanent downward shift in growth or whether it reflects cyclical issues."