LONDON: Britain's economy gently picked up speed in the third quarter, official data showed on Wednesday, strengthening expectations of an interest rate hike next month, despite uncertainty over Brexit.
Gross domestic product grew by 0.4 percent in the period from July to September, after expanding by 0.3 percent in the preceding three months, the Office for National Statistics said in a statement.
The data were still only preliminary and are scheduled to be revised and updated next month.
Nonetheless, the government welcomed the figures ahead of its 2018 budget, to be delivered in a difficult economic and political context as British business and finance lobby groups push for a transition deal to be signed with the European Union before Christmas.
A 'resilient' economy
"We have a successful and resilient economy which is supporting a record number of people in employment," said finance minister Philip Hammond.
The strongest motor of growth was the service sector, which grew by 0.4 percent quarter-on-quarter, driven mainly by the finance sector and computer programming activities, according to the ONS.
Strengthening industrial production figures also contributed to growth, outweighing a decline of 0.7 percent in the construction sector.
The GDP reading outdid market expectations, which were for growth to match the 0.3-percent figure recorded in the period from April to June.
GDP measures the total amount of goods and services produced in an economy over time.
Analysts said the slight pick-up in the overall economy has increased chances of a rate hike at the next meeting of the Bank of England's monetary policy committee.
"Despite the Brexit headwinds, UK growth is good enough to give the (BoE) the green light for a rate rise next Thursday," said Deloitte economist Ian Stewart.
But productivity, expected to be addressed by Philip Hammond in his budget speech next month, remains a cause for concern.
A key driver of economic growth, it is no higher this quarter than it was before the 2008 financial crisis.
Brexit uncertainty
Year-on-year growth in the third quarter was only 1.5 percent, below the 1.8 percent growth rate recorded over the whole of 2016.
Hargreaves Lansdown economist Ben Brettell described the figure as "lacklustre".
"Brexit-related uncertainty is the obvious scapegoat –- and it's played a part, discouraging business investment and causing a spike in inflation," he said.
Although unemployment is at a 42-year-low, slow wage growth and inflation of around three percent are weighing on consumer purchasing power.
"Economic growth for the majority of 2017 has been below what was expected," Labour's Shadow Chancellor John McDonnell said.
"The UK is not growing as fast as many of our trading partners in the EU or the USA, and it is becoming increasingly clear that this government has to use next month's budget for a change of direction," he added.
Risk of 'disorderly' exit
The first estimate of third quarter GDP figures came just a week after the OECD left its economic growth forecasts for Britain unchanged from its previous prediction of 1.6 percent in 2017 and one percent in 2018.
The Paris-based organisation warned that a "disorderly Brexit", one in which no trading relationship is arranged, would constitute a medium-term shock to Britain's economic growth prospects.
Businesses have said they are delaying investment due to uncertainty surrounding a transition arrangement ahead of Britain's planned departure from the European Union in March 2019.
Brexit negotiator David Davis said on Wednesday he hopes to agree with the EU on a transition period by the end of the year, and conclude a trade deal by 2019.