LONDON (SHARECAST) - The United Kingdom’s gross domestic product (GDP) rose at a 1.0 per cent clip in the three months ended in September, according to the latest data just out from the Office for National Statistics (ONS).
That was the strongest reading since late 2007 and means that the economy exited from its double-dip recession.
The consensus estimate had been for a reading of 0.6% quarter-on-quarter, with some economists anticipating a rate of expansion of as low as 0.4%.
Nevertheless, others, such as Goldman Sachs Asset Management’s Jim O’Neill, had warned of the possibility for such a positive outcome.
Versus a year ago GDP remained flat however, even if that was far better than estimates for a contraction of 0.5% year-on-year.
To be had in account, the ONS has indicated that: "it is not possible to quantify the overall impact of the Olympics and indeed some of the activity may have displaced other activity (for example, the comments on watching the Olympics in preference to films or DVDs)." Hence, no downwards adjustments were made to the data.
Nevertheless, economists at Barclays Research are commenting that: "ONS analysis suggests that the Olympic Games directly added just 0.2 percentage points to GDP growth, through ticket sales, in the third quarter," adding that, "we had expected a broadly neutral effect from the Olympics, with the direct positive effects offset by displacement of other activity."
The significance of the above lies in the fact that current levels of economic activity -while not impressive by any means- are now sufficient so that various forecasters (such as Barclays Research or Investec) are now no longer calling for further easing at the Bank of England's next policy meeting.
Quarter three: By the numbers …
The services sector surprised very strongly to the upside, sporting an increase of 1.3% in terms of quarterly rates of change, after a contraction of 0.1% in quarter two.
Output from the production industries was estimated to have grown by 1.1%, in terms of quarterly rates of change, after a 0.7% fall in the previous quarter.
Meantime, construction sector output is thought to have decreased by 2.5%, after a 3% drop in quarter two.
The figures may afford the Prime Minister some shelter from recent setbacks on other fronts. Precisely in that regard, Mr.Cameron yesterday told the Commons to expect more “good news,” something which has been criticised by those who thought he was referring to today’s figures, thus breaking the mandatory information embargo.
The Prime Minister is amongst those who is permitted to preview the data 24 hours ahead of its release.
Implications for monetary policy
Speaking immediately after the data, ex-deputy Bank of England (BoE) Governor John Gieves remarked on Bloomberg TV that today's data could slightly tilt the BoE away from further stimulus at its November meeting, or lead it to stall on this front for one or two months. Another possibility which some market commentary is holding out is that the central bank might opt to simply scale back the size of any increase in its asset purchase facility.
"Given that a recent poll by Reuters was already placing the probability of further QE -in November- at just a relatively paltry 60% then, when combined with all the above, further QE does seem to be off the table for now (although a £25bn boost to asset purchases is a possibility). However, it remains to be seen if the possibility of further QE, at some point further down the line, is truly completely off the table, given existing risks in the Eurozone," comment analysts at Digital Look.
Precisely in that regard perhaps, just two days ago Bank of England Governor Mervyn King indicated that “At this stage, it is difficult to know whether some of the recent more positive signs will persist (...) The MPC will think long and hard before it decides whether or not to make further asset purchases. But should those signs fade, the MPC does stand ready.”
The initial reaction by Sterling -in its cross versus the US dollar- has been a jump up to 1.6126 from 1.6092 just before.