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Last Updated: Wednesday, 25 January 2006, 11:33 GMT
Service sector boosts UK growth
UK Chancellor Gordon Brown
Gordon Brown revised his economic growth forecast in December
Economic growth in the UK expanded at a faster-than-expected rate in the fourth quarter of 2005, led by a strong service sector, official figures show.

GDP rose by 0.6% percent in the fourth quarter, its fastest quarterly pace in a year, according to the Office for National Statistics (ONS).

This beat analysts' forecasts for a 0.5% growth rate and was better than the 0.4% rate from the third quarter.

However, for the full year 2005, GDP grew by 1.8%, the weakest since 1992.

But this figure was slightly above Chancellor Gordon Brown's forecast of a 1.75% growth rate, which he revised down from his original estimate of 3-3.5% in last December's pre-Budget report.

Fourth quarter growth rose 1.7% year-on-year, boosted by a strong showing in the services sector, which rose by 0.9%, its best performance for one and a half years, the ONS said.

Rates pressure

The figures are likely to support expectations that Bank of England policymakers will keep interest rates on hold at 4.5% next month ahead of more clues on the state of consumer spending at the start of 2006.

Powerful fundamental factors continue to support the case for an early modest interest rate cut
David Kern, BCC

Minutes from the latest rate-setting meeting of the Bank of England's Monetary Policy Committee (MPC) showed the committee voted 8-1 in favour of keeping rates on hold in January.

MPC member Stephen Nickell voted for a quarter percentage point cut in interest rates to 4.25% in order to lift growth.

The British Chambers of Commerce (BCC) agreed with him.

"In spite of the modest improvement in GDP growth in Q4 2005, powerful fundamental factors continue to support the case for an early modest interest rate cut," said David Kern economic adviser to the BCC.

"UK unemployment is rising, year on year GDP growth is significantly below-trend, and wage rises and CPI inflation have both eased.

"The rise in sterling significantly reduces any risks that may be associated with an interest rate cut."




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