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U.K. growth steady in 4Q
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January 28, 2000: 7:04 a.m. ET
British GDP expanded 0.8% in fourth quarter; supports near-term rate hikes
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LONDON (CNNfn) - Britain's economy expanded 0.8 percent in the last three months of 1999, as expected, matching the previous quarter's growth rate as output in service industries grew at an increasing rate. Economists said the figures reinforced expectations that the Bank of England will have to raise U.K. interest rates further in coming months to head off inflation.
On a year-to-year basis, gross domestic product growth quickened to 2.7 percent in the final quarter of 1999 from 1.9 percent in the preceding quarter, the U.K. Office for National Statistics reported Friday. The 2.7 percent increase was the strongest year-to-year increase since the first quarter of 1998.
Economists said the current growth rate is far above the average pace of expansion the U.K. has experienced for the past four decades. The latest figures provided extra insight into the arguments the Bank of England has advanced to justify three rate increases since last September, which have pushed its key repo rate up to 5.75 percent.
The bank fears that galloping growth, left unattended, could spur a burst in inflation beyond the 2.5 percent target it has set over a two-year horizon. Inflation currently stands at 2.2 percent in Britain.
Jonathan Loynes, U.K. economist with HSBC in London, said Friday's data lend credence to these concerns.
"I think in the near term there will be more upward pressure," Loynes said. "The bottom line here is that growth is still strong given the perceived lack of slack in the economy." However, the pattern of official interest-rate increases should taper off towards the spring, he said.
The British economy expanded by 1.9 percent in 1999 as a whole, just shy of the previous year's composite rate of 2.2 percent. Loynes said that he saw no evidence so far that the strength of the pound is having a negative effect on British industry.
Growth in the service sector - which accounts for two-thirds of the British economy - accelerated to 0.9 percent in the fourth quarter from 0.6 percent in the third. Distribution and catering industries recorded moderate growth, while parts of the transport and the communications industries grew more strongly, the ONS said.
For business services, the ONS said growth was modest, along with some weakness in computing services. The British economy has now expanded for seven and a half years, growing by 23.3 percent since the second quarter of 1992. 
--from staff and wire reports
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