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Last Updated: Friday, 20 October 2006, 10:11 GMT 11:11 UK
GDP growth faster than expected
Gordon Brown
Growth in 2006 is almost certain to beat the chancellor's forecasts
The UK economy grew at its fastest rate for two years in the third quarter of this year, the Office for National Statistics (ONS) has said.

UK GDP grew by 0.7% between July and September, compared with the previous quarter. A rate of 0.6% had been expected by forecasters.

This takes the annual growth rate up to 2.8%, boosting chances that the Bank of England will raise interest rates soon.

The service sector was the primary growth engine, figures showed.

Economy threat

Although the latest inflation figures, released earlier this month, showed a slight easing, the economic growth figures add to the calls for the Bank to raise UK interest rates from 4.75% to 5% at its November meeting.

Last month's Consumer Prices Index figure was 2.4% - a reduction from the 2.5% seen in August, but still ahead of the government's 2% target.

Earlier this month, Bank of England governor Mervyn King warned inflation was still a threat to the UK's economic health, despite recent falls in the cost of oil.

The GDP figures showed that construction rose by 0.5% and manufacturing by 0.3%.

There was growth too in transport, communications and storage industries.

Business services - including recruitment agencies and architects and engineers - and finance rose by 1.4% - the same as in the previous quarter.

Chief economist at Investec Securities, Philip Shaw, said he expected the UK economy to exceed Chancellor Gordon Brown's range of 2% to 2.5% for this year, but to fall a little short of his range for next year of 2.75% to 3.25%.

An increase in interest rates was "firmly on the cards", he added.

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