The UK economy expanded at its fastest annual pace in more than three years, official data showed yesterday - revealing resilience in the face of a global credit crunch, but also reducing the chances of an interest rate cut this year.
The latest figures from the Office for National Statistics show that gross domestic product - the main measure of a country's economic activity - grew by 0.8% between July and September, in line with the previous three months and ahead of forecasts for a slowdown to 0.7%.
The annual rate accelerated to a robust 3.3%, the strongest figure since the second quarter of 2004 and above expectations of 3.1%, and about 0.3% above the figure pencilled in by the Bank of England's Monetary Policy Committee in the August inflation report.
The pound climbed and interest rate futures fell as investors bet the Bank of England will be in no hurry to cut borrowing costs this year, given signs that consumers and businesses have held up well against this summer's financial market turbulence.
The Bank of England held its benchmark interest rate steady at 5.75% earlier this month after weeks of turmoil in global financial markets. Before the credit markets seized up, many economists had been forecasting another rate increase to 6% later this year or early next year.
However, yesterday's ONS data simply provides additional fuel - on top of this week's strong retail data and the overall dovish minutes from latest MPC meetings - to the view of most observers that interest rates will remain on hold.
Even the financing crisis at Northern Rock last month, which triggered the first run on a UK bank in 150 years, failed to dent demand for consumer services, which made a solid 1% contribution to growth in the third quarter, yesterday's ONS figures revealed.
Jonathan Loynes, chief European economist at Capital Economics, said: "The first estimate of UK GDP in Q3 confirms that the economy has retained plenty of momentum over recent months.
"The strong starting point confirmed by these figures - coupled with the MPC's view that the economy needs to slow to keep inflation on target - supports our view that the committee will be in no great rush to cut interest rates."
The growth in services was achieved in spite of signs of a softening in the various business surveys during the quarter, particularly in August.
Nonetheless, many economists are of the view that these figures are of course historical and growth looks likely to slow over the coming quarters.
Most expect the economy to run out of steam next year as the impact of past interest rate rises, the strong pound and tighter credit conditions resulting from market turbulence this year weigh on demand.
However, George Buckley, chief UK economist at Deutsche Bank, said: "A near-term rate cut looks to be dead in the water after yesterday's strong retail sales report and now a punchy GDP reading.
"For the time being, upbeat real economy news should keep the BoE on hold for the rest of 2007."
The pick-up was also driven by the distribution, hotels and restaurants sector - which includes retail - and transport, storage and communications, and suggests that consumers are not yet feeling the squeeze from tighter lending conditions.
The business services and finance sector maintained its heady pace of growth of 1.7% on the quarter, in spite of the turmoil that engulfed financial markets in the July to September period.
Nonetheless, total production growth in the UK slowed sharply to 0.2% on the quarter from 0.7%, mainly because of much weaker manufacturing output.
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