Oct. 24 (Bloomberg) -- Britain's economy probably expanded 0.6 percent in the third quarter, matching the pace of the previous three months, as spending on services including banking and travel picked up, a survey of economists showed. That compares with 0.2 percent growth in the first three months. In the third quarter, gross domestic product grew an annual 1.9 percent, according to the median estimate of 31 economists surveyed by Bloomberg News. Today's report will be the first for the quarter from the Group of Seven industrialized nations. ``We might get quite a strong bounce in service sector activity, driving growth,'' said Mike Taylor, a London-based economist at Merrill Lynch & Co., who predicts 0.7 percent growth in the third quarter.
The economy expanded twice as fast in the first two quarters as previously estimated, the statistics office said last month, suggesting growth this year will meet the low end of Chancellor Gordon Brown's forecast range of between 2 percent and 2.5 percent. Consumer spending, which accounts for two-thirds of GDP, has helped keep Britain's economy out of recession. The GDP figures will be released at 9:30 a.m. in London, alongside figures for retail sales. Sales probably grew 0.4 percent in September from August, economists predicted. The Bank of England kept its benchmark lending rate at a 48- year low of 3.5 percent this month, after lowering borrowing costs in February and July.
Rate Expectations
Four of nine policy makers voted to raise rates, minutes of the October meeting showed this week, spurring expectations the bank will be the first of the world's four biggest central banks to lift rates since 2000. Global economic growth is picking up, led by the U.S., after three years of interest rate cuts. The rate on the December three-month interest-rate futures contract was 4.02 percent yesterday. That's above the current three-month rate at which banks lend to each other in the money markets of 3.86 percent, suggesting traders expect the central bank to raise its lending rate by year-end. Britain is outperforming the $8 trillion euro economy, which stagnated in the first six months of the year. The 12-nation euro economy is likely to grow only 0.4 percent this year, the weakest pace since 1993, the European Central Bank predicts. The Bank of England's rate-setting committee agreed the economic outlook was ``stronger for the U.S. and possibly for Japan than for the euro area,'' where growth ``continued to disappoint,'' the minutes of the October meeting showed.
U.S. Growth
Growth in the U.S. economy, the world's largest, may accelerate to an annual rate of about 5 percent in the third quarter from 3.3 percent in the second, two members of the U.S. Federal Reserve have forecast. U.K. surveys from the Chartered Institute of Purchasing and Supply suggest growth in service industries picked up in the third quarter, economists said. John Butler, a former Bank of England economist now at HSBC Holdings Plc, predicts services growth of ``over 1 percent'' compared with just 0.2 percent in the second quarter. The revisions to first-half growth, which the national statistics office chief, Len Cook, called a ``surprise,'' are under review by the Statistics Commission, which monitors the quality of government statistics. Richard Alldritt, the commission's chief, has said some changes were probably avoidable. Ed Balls, the U.K. Treasury's chief economic adviser, said last week that even before the revisions the U.K. economy showed signs of ``strengthening in the second half of the year.'' He added, ``household spending has continued to grow strongly thanks to the support from monetary and fiscal policy.''
More Spending
Bank of England policy makers led by Governor Mervyn King have voiced concern that their nine rate reductions since the start of 2001 have encouraged consumers to borrow and spend too much. U.K. mortgage lending growth accelerated in September, pushing gross lending to a record, lenders' figures showed this week. ``The prospects for U.K. domestic demand appeared stronger both on the month and relative to the August inflation report,'' policy makers agreed this month, according to the minutes. They said house prices and mortgage borrowing suggested that ``consumption growth would not moderate as quickly as previously expected.'' The statistics office won't release manufacturing and industrial production figures in its preliminary estimate of third- quarter GDP. Some economists, including Merrill's Taylor, forecast a ``modest'' expansion in manufacturing output over the quarter. //www.bloomberg.com