–Preliminary Q1 GDP +0.8% q/q; +2.8% y/y
–Median forecast: +0.5% q/q; +2.4% y/y

LONDON (MNI) – UK economic output rose strongly in the third
quarter boosted by healthy growth in the construction sector, according
to figures released by National Statistics Tuesday.

GDP rose 0.8% on the quarter in Q3 and was up 2.8% on the year,
significantly above the median forecast for a rise of 0.5% on the
quarter and 2.4% on the year.

The strong data will be reckoned to reduce the likelihood of the
Bank of England adding to its program of Quantitative Easing at the
November Monetary Policy Committee meeting. The quarterly data suggest
growth is running above trend.

BOE Governor Mervyn King warned, however, in a speech last week
against attaching great weight to quarterly growth rates, adding the UK
economy had lost a vast amount of output as a result of the credit
crunch. The BOE also uses business survey to construct its own estimate
of growth, rather than relying solely on National Statistics estimates.

The latest GDP data are stronger than the projection in the August
Inflation Report, which showed the Bank of England thought growth
would come in at 2.45% in Q3 compared with the 2.8% outturn.

The latest quarterly increase followed a 1.2% rise in growth in Q2,
the fastest pace of growth over two quarters since Q1 and Q2 in 2000.

Growth in the service sector stood at 0.6% on the quarter in Q3,
the third consecutively increase of this magnitude, and was up 2.1% on
the year.

There was very strong showing from the construction sector where
output rose 4% on the quarter, following a 9.5% rise in Q2. Construction
output is now 11% above levels a year earlier, the highest since Q1
1998.

A Market News story earlier this week highlighted the upside risks
to the latest GDP data, stemming from higher construction output. Some
economists had highlighted the very robust recent figures in National
Statistics newly created monthly construction data series.

Industrial production was up 0.6% on the quarter and by 3.4% on the
year, boosted by a 1% quarterly rise in manufacturing output.

The only major category to show a fall was agricultural output
which declined by 0.3% on the quarter.

–London newsroom: 44 20 7862 7492; e-mail:drobinson@marketnews.com

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