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British economy powers ahead in third quarter (AFP)
by Roland Jackson Thu Dec 21, 9:45 AM ET
LONDON (AFP) - Britain's economy grew at its fastest annual pace for two years in the third quarter of 2006, official data showed, increasing expectations of another British rate hike soon, analysts said.
The economy grew at an annual rate of 2.9 percent in the third quarter compared with the same period of 2005, the Office for National Statistics said in its final estimate.
That marked an upward revision of 0.2 percent and put the annual pace of growth at its highest level since the third quarter of 2004 when it stood at 3.1 percent.
Thursday's data was good news for British finance minister Gordon Brown, who now appears more likely to meet his growth forecast for 2006.
"Because of the upward revisions it makes Mr Brown's 2.75 percent forecast a little easier to achieve," Investec economist Philip Shaw said.
However, analysts warned it could mean that the Bank of England's rate-setting Monetary Policy Committee (MPC) could hike British interest rates early in 2007.
The ONS said the revision followed upward adjustments to business services and finance in the first six months of 2006.
Meanwhile, third-quarter growth stood at 0.7 percent compared with the previous three month period. That is close to Britain's quarterly trend rate, or long-term average, which is widely perceived to be about 0.6 percent.
The quarterly reading was unchanged from the previous two estimates and was the fourth time in a row that the ONS has recorded a 0.7-percent increase in gross domestic product ( GDP) growth.
Consensus forecasts had been for annual growth of 2.7 percent and a quarterly figure of 0.7 percent.
"The momentum seen in the third quarter will add to the MPC's suspicions that the economy is currently operating pretty close to full capacity and supports other recent evidence pointing to a further rise in interest rates early next year," according to Capital Economics analyst Jonathan Loynes.
While quarterly economic growth appeared fine, harder times may lie ahead, according to Zaki Kada at Thomson Ifr Markets.
"The UK continues to grow around trend but headwinds from stronger sterling, tighter monetary conditions, high debt burden and rising unemployment could cripple growth going forward," Kada said.
The BoE raised rates twice during 2006 to keep inflation in check. The first hike came in August when borrowing costs were surprisingly lifted by a quarter point to 4.75 percent. Rates were then hiked to 5.00 percent in November.
British inflation came to 2.7 percent in November, the highest level since Labour came to power in 1997. It was also the seventh month in a row that the figure had been above the BoE's government-set target of 2.0 percent.
- Office of National Statistics (ONS)
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