Britain’s economy grew at double the pace forecast by economists in the third quarter as services and construction helped sustain the recovery, easing pressure on the Bank of England to buy more government bonds next week.

Gross domestic product rose 0.8 percent in the three months through September after increasing 1.2 percent in the previous quarter, the Office for National Statistics said in London on Tuesday. Economists forecast a 0.4 percent gain, according to the median of 35 predictions in a Bloomberg News survey.
Government bonds dropped and the pound jumped after the release, which was the first quarterly report from a Group of Seven nation and came as central banks around the world debate whether to add more stimulus to aid a faltering global recovery. UK growth may slow further as the economy braces itself for half a million job cuts announced last week by Prime Minister David Cameron’s government to cut the budget deficit.
“This could be the last hurrah before the measures from the spending review really start to bite,” said Hetal Mehta, an economist at Daiwa Capital Markets Europe Ltd. and a former UK Treasury official, who had predicted a 0.4 percent increase. “We will see growth slow quite dramatically until the middle of next year. Still, ‘‘any idea that the BOE will be in a hurry to implement more quantitative easing should be dispelled.’’
The pound jumped 0.6 percent against the dollar after the report and traded at $1.5843 at 10:20 a.m. in London. The yield on the benchmark two-year government bond climbed 7 basis points on Tuesday to 0.684 percent.
------------RBS forecast
The GDP result is the second-fastest reading since the first quarter of 2007, the statistics office said. Only Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, predicted the 0.8 percent figure correctly. The lowest forecast, by Natixis, was for a 0.2 percent contraction.
Services, which make up 76 percent of GDP, grew 0.6 percent on the quarter, the statistics office said. Industrial production rose 0.6 percent, driven by a 1 percent jump in manufacturing. Construction increased by 4 percent on the quarter and 11 percent on the year, which was the fastest annual pace since 1988.
“It’s a decent set of numbers,” said RBS’s Walker. “The difference between us and the rest of the street was probably that we were looking for a bigger boost to construction. We’re still looking for a slowdown in the fourth and first quarter as the fiscal tightening comes in and the spending cuts begin to take effect.”
------------Government support
Cameron on Monday pledged a “relentless focus on growth” as the deepest budget cuts since World War II, announced last week by Chancellor of the Exchequer George Osborne, threaten to derail the recovery and hurt the government’s popularity.
Support for the Conservatives fell behind the Labour Party for the first time in three years, the London-based Times reported on Tuesday, citing a poll by Populus. Backing for Cameron’s party slipped two points to 37 percent, while support for Labour was at 38 percent, the Times said.
“This news on the British economy is very welcome,” Osborne said in an e-mailed statement. “Along with the decisive action we are taking on the deficit it should help underpin confidence. Although global economic conditions remain choppy, a steady recovery is under way.”
Opposition Labour Party leader Ed Miliband said on Monday that Cameron lacks a plan for economic growth, and called for a “new approach” to supporting British industry.
--------------Retail sales
Data still shows the pace of growth is slowing. Jobless benefit claims rose the most in eight months in September, while Lloyds Banking Group Plc’s Halifax unit said house prices fell the most on record. Retail sales unexpectedly dropped for a second month, and mortgage approvals fell to the lowest in 1 1/2 years.
Some executives are playing down the risks of a renewed slump. Marks & Spencer Group Plc Chairman Stuart Rose said in an interview on Monday that a double-dip recession is unlikely after government-spending cuts offered some “clarity” to Britons.
Bank of England policy makers will consider whether to buy more bonds at their decision on Nov. 4, a day after the U.S. Federal Reserve may increase stimulus at own policy meeting.
It’s “a very close call,” RBS’s Walker said. “We’re sticking with our call for more QE in November, we see them doing another 50 billion pounds.”
----------------Bond purchases
The UK central bank left its benchmark interest rate on hold at a record low of 0.5 percent this month and kept its asset-purchase program at 200 billion pounds ($315 billion).
Minutes of the bank’s decision this month show UK officials were leaning towards making further emergency bond purchases to shore up the recovery. Seven of the bank’s nine policy makers voted for no change, Adam Posen favored more bond purchases and Andrew Sentance opted for an interest-rate increase. Inflation stayed at 3.1 percent in September, exceeding the government’s 3 percent limit for a seventh month.
“Today’s outcome will help to push back further talk of QE, but given the headwinds from ongoing credit restrictions, public sector job losses, benefit cuts and higher taxes, growth is likely to continue slowing,” said James Knightley, an economist at ING Financial Markets in London. “Consequently, we still see the case for further QE, starting with 50 billion pounds in February.”
(Source: Bloomberg)