The initial predicted GDP figures from the ONS showed a 0.8% rise in Q3, beating Q2’s 0.7%, and representing the UK’s strongest rate of growth since the second quarter in 2010.
Capital Economics said it was encouraged that the UK looked to be demonstrating a healthier rate of growth than the rest of the G7 in Q3, but noted the UK data had been released earlier than that of its peers.
At sector level, the improvements looked fairly balanced, with all the major economic sectors contributing to growth. Manufacturing and construction grew by 0.9% and 2.5% respectively, while the services sector rose by 0.7%.
Bestinvest managing director Jason Hollands said mid caps demonstrated a greater domestic earnings profile and would gain from the growth seen in core cyclical sectors, such as housebuilders.
That growth was 1.5% higher in Q3 2013 compared with the same period last year, when the UK was enjoying the boost from the Olympics was said by Hollands to be “a real sign of progress.”
Unsurprised by the data, Schroders’ European economist Azad Zangana expected a pullback in growth over the coming months, but also expected a surge in housing activity and its related consumption should keep the UK growing at a steady pace throughout 2014.
According to Close Brothers’ CIO Nancy Curtin, the numbers have put Chancellor George Osborne in a strong position leading up to the Autumn Statement.
She said fears of a triple-dip recession had now been eluded and it mitigated any calls for further QE.
Curtin suggested domestic equities should rise off the back of the announcements, agreeing with Hollands in her predictions for particular upside movement in mid-cap stocks, which she said have exploited the economic upswing this year.
“If history has taught us anything it’s not to be complacent and there could still be bumps along the road, but if the recent positive economic data can translate into a rosier outlook for earnings, it will act as a catalyst for further gains for investors into 2014,” she added.
Like Schroders’ Zangana, Samuel Tombs, a Capital Economics’ UK economist, tried to manage investors’ expectations for the months ahead. He said: “Looking ahead, falling real pay, the fiscal squeeze and the dormant state of the eurozone economy seem likely to prevent the UK’s economic recovery from gathering much more pace. But with employment growing, confidence returning and productivity still well below its potential, it seems unlikely that the recovery will fade significantly either.”
Markit’s chief economist Chris Williamson suggested November’s Inflation Report from the Bank of England would reveal higher inflation targets, suggesting rising interest rates might be seen earlier than previously expected.
He said: “Expectations will therefore mount that the Bank will start raising interest rates earlier than it expected back in August, when a tightening of policy was not envisaged before 2016. An imminent hike is certainly not on anyone’s radar, but if the economic data continue to surprise on the upside, it is reasonable to assume that rates will start rising in 2015.”
