UK Economy 'Grew 1.2% In Third Quarter'

Closely-watched readings of activity in the UK economy have measured an acceleration in GDP growth to 1.2% in the third quarter - partly driven by the housing market.

The estimate was announced by compilers of the Markit/CIPS Purchasing Managers' Index (PMI) following the reading for the service sector in September.

Markit's composite index, which brings together its surveys of services, manufacturing and construction, came in at 60.4 in September, with a figure above 50 signalling expansion.

It averaged 60.2 over the third quarter and Markit said it marked the fastest rate of quarterly growth since records began in 1998 and GDP growth for the quarter as a whole of 1.2%.

It would represent a sharp improvement on the 0.7% official rate of growth in the second quarter of 2013.

Surging property deals have boosted financial services in London especially

The PMI surveys for September suggested that overall employment recorded the fastest rise in six years and forecast that hefty amounts of outstanding business would continue to drive hiring.

This contrasts with the Bank of England's view that substantial spare capacity in the economy will put a brake on job creation, delaying a rise in the base rate of interest until the second half of 2016 under its current forward guidance.

The central bank said in August that it would not consider raising borrowing costs until the jobless rate falls to 7% unless inflation looked likely to get out of control.

The service sector survey out on Thursday covers transport and communication, financial intermediation, business services, personal services, computing and IT, hotels and restaurants but excludes retail.

Service providers also reported that a jump in new business last month placed strains on resources, with backlogs of work rising at the fastest pace in more than 13 years.

The workload, along with firms' optimism about future business, led to a solid rise in employment and some pay rises.

Chris Williamson, Markit's chief economist, said: "Growth is being led by financial services - linked in part to increased housing market activity - and the business sector.

"Consumer-facing services continue to struggle, reflecting the ongoing squeeze on incomes due to weak pay growth and high inflation."

Vicky Redwood, chief UK economist at Capital Economics, urged caution on the prediction of 1.3% GDP growth in the third quarter.

She said: "Admittedly, the official data that we have had so far suggest that this might be a bit of a tall order.

"Nonetheless, GDP growth should have at least beaten Q2's 0.7% quarterly rise and the surveys suggest that the fourth quarter is starting on a strong note too.

"Overall, then, more evidence that the recovery is becoming well-entrenched," she concluded.

The first official estimate of GDP growth for the third quarter is announced by the Office for National Statistics on October 25.

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