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UK economic growth enough to put further interest rate cuts on hold

by: Adam Lewis
  • 27/10/2016
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UK economic growth slowed slightly in Q3, slipping to 0.5% from the 0.7% recorded in the second quarter, according to a preliminary estimate from the Office for National Statistics (ONS).

The time period from July to September covers the first full quarter since the UK’s decision to leave the European Union and still managed to beat analyst expectations of 0.3% GDP growth. It also represents the 15th consecutive quarter of UK economic growth.

Despite being just a first estimate for how much the economy grew, Ian Kernohan an economist at Royal London Asset Management, said the 0.5% quarter-on-quarter increase will cause the Bank of England’s Monetary Policy Committee (MPC) to pause any more planned interest rate cuts.

“Markets had priced out an interest rate move in November and the MPC will be reluctant to spring a fresh surprise, particularly given the recent fragility of sterling,” he said. “There isn’t really enough time to shift market expectations between now and the MPC meeting next week.

“Sterling enjoyed a modest bounce on the better than expected GDP figures. Prospects for the currency depend on whether it can jump back to trading on the data rather than politics, however this is unlikely as we head towards triggering Article 50.”

According to the ONS, the pattern of growth in the UK continues to be broadly unaffected following the EU referendum, with strong performance in the services industries offsetting falls in other industrial groups.

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