UK Economy Expands More Than Forecast In Q3

The UK economy expanded more-than-expected in the third quarter led by services, providing room for the Bank of England to hike the interest rate as early as next week.

Gross domestic product grew 0.4 percent sequentially in the three months ended September, slightly faster than the 0.3 percent growth seen in the second quarter, preliminary estimate from the Office for National Statistics showed Wednesday.

The ONS said following growth of 0.4 percent GDP has grown for 19 consecutive quarters.

On a yearly basis, economic growth held steady at 1.5 percent in the third quarter, which was in line with expectations.

The production-side breakdown of GDP showed that services remained the largest contributor to GDP growth, with the 0.4 percent quarterly expansion.

The main contributor to services growth was the business services and finance sector, which increased by 0.6 percent.

After a weak second quarter, manufacturing climbed 1 percent. Overall production as well as farm output also grew 1 percent each.

Meanwhile, construction contracted for the second quarter in a row with output shrinking 0.7 percent.

GDP figures revealed that the economy re-gained a bit of momentum in the third quarter and have probably sealed the deal on an interest rate hike next week, Ruth Gregory, an economist at Capital Economics, said.

James Smith, an ING economist, said the main difference between the second and third quarter was a sizeable contribution from manufacturing.

The service sector is still struggling to fire on all cylinders and that has meant that overall growth is still below the 0.6 percent average quarterly GDP increases seen between 2014-16, the economist noted.

Smith expects the BoE to increase interest rates next week but the sluggish growth outlook will weigh heavily on the Bank's decision-making process when it comes to further tightening next year.

The BoE is set to publish its next Inflation Report with the MPC decision on November 2.

Another report from the ONS showed that the index of services climbed 0.2 percent in August from July. In the three months to August, services output rose 0.4 percent from the previous quarter and 1.7 percent from last year.