Surprise GDP growth as UK economy stronger than first thought

The UK economy has grown, confounding predictions it would shrink, official figures show.

A key measure of economic growth - gross domestic product (GDP) - rose 0.1% in August, according to the Office for National Statistics.

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GDP measures everything produced in an economy and had been forecast by numerous economists to fall between 0.1% and 0.3%.

The growth is even better when looked at on a three-month basis, as ONS figures show it rising 0.7%, also a surprise to economists.

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Previously positive figures are even better than first thought and have also been revised upwards.

The June figure was actually 0.4% and the three-month figure up to July was an even better 0.5%, the ONS said.

Economic growth has beaten or matched economists' expectations every month this year except in January.

Economists had predicted the economy was likely to contract in August in a "correction", after stronger-than-expected performance in June and July.

But GDP showed "further strength" in the words of the ONS's director of economic statistics, Liz McKeown.

Chancellor John Healey said the figures were "welcome news", while the shadow chancellor, Andrew Griffith, said the government must cut taxes at the autumn Budget or risk the economy going "into reverse".

Not all rosy?

Other analysts have been less positive.

"The momentum that had grown over the long hot summer of sport has faltered and the dominant service sector has begun to buckle under the pressure of rising prices and consumer caution," said Danni Hewson, the head of financial analysis at investment platform AJ Bell.

While the biggest part of the economy, the services sector, showed no growth in August, growth came from a 0.8% boost in factory production.

Computer programming drove growth across the three months to August, Ms McKeown said.

A range of business-facing industries, including legal services, research and development as well as advertising, all performed strongly across the summer.

It comes as the International Monetary Fund (IMF) this week raised its forecast for the UK economy from 1% to 1.3% growth.

What does it mean?

The economy has grown faster than the interest rate setters at the Bank of England anticipated, with three-month growth at 0.7%, above its 0.4% prediction.

This makes the interest rate decision next month a "straightforward" hike, according to economic research firm Pantheon Macroeconomics.

The rate-setting committee currently faces no trade-off between high inflation and weak growth, said the firm's chief UK economist, Rob Wood.

There'll be a hike to 4% in November and to 4.25% in February, he added.

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