GDP growth stronger than predicted but 'squeeze' continuing
Heightened uncertainty and pressure on incomes will continue despite an unexpected increase in economic growth in the last quarter, it's been claimed.
The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4% in its initial estimate for July to September this year.
The rise is above expectations of 0.3%, as economists predicted growth in line with the first and second quarters of 2017.
But Danske Bank economist Conor Lambe warned growth was still below average.
"Despite the slight uptick, real GDP growth in the UK remains a bit below its historic average as the economy continues to feel the effects of a squeeze on consumers and heightened uncertainty levels due to Brexit. Both of these factors are expected to continue weighing down on growth over the rest of this year and into 2018."
The lion's share of the expansion came from the services and manufacturing industries, while the construction sector fell into recession.
However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6%.
It comes as the Bank's Monetary Policy Committee (MPC) mulls whether to raise interest rates from record lows of 0.25% as inflation continues to soar.
Howard Archer, EY ITEM Club's chief economic adviser, said: "Improved third-quarter GDP growth of 0.4% quarter-on-quarter increases the chances that the Bank of England will raise interest rates from 0.25% to 0.5% on November 2, after the MPC meeting."
Higher than expected third-quarter growth is a boost for Chancellor Philip Hammond as he gears up to deliver his Budget next month. He recently warned that Brexit had left the UK economy under a "cloud of uncertainty", while the International Monetary Fund also raised the growth outlook for every advanced economy aside from Britain because of its EU divorce.
Responding to the GDP announcement, the Chancellor said: "We have a successful and resilient economy which is supporting a record number of people in employment."
On an annual basis, GDP expanded by 1.5% in the third quarter, compared to the same three months in 2016.
Sterling shot up following the release, rising more than 0.3% against both the US dollar and the euro.
Darren Morgan, the ONS head of national accounts, said: "Services, led by increases in IT, motor trades and retail, continued to drive GDP growth."