Britain's economy grew twice as fast as expected in the third quarter of this year, official data showed today, dimming the chance of more quantitative easing from the Bank of England in the near term.
However, growth is still expected to slow next year as government spending cuts bite, VAT rises and the rebound in construction activity is likely to wane.
The Office for National Statistics said Britain's economy grew 0.8% between July and September, a quarter of which was due to the construction sector, which represents barely 6% of the economy.
Analysts had forecast growth of 0.4% on the quarter - one third the rate seen in the first three months of the year. On the year, GDP grew by 2.8% - the fastest annual rate in three years and up from 1.7% in the previous quarter.
The statistics office said the third quarter was the first this year not to have been distorted by weather-related effects which depressed output in the first quarter and boosted it in the second.
Annual construction ouput growth of 11% was the highest since the first quarter of 1988. Services growth held steady at 0.6% on the quarter but industrial output growth slowed to 0.6% from 1% in the previous quarter.
S&P boost for Osborne's austerity plan
Credit rating agency Standard & Poor's has lifted its outlook for Britain's AAA rating to 'stable' from 'negative' in what will be seen as a vote of confidence for the British government's austerity programme. A negative outlook meant the UK was in danger of losing its top rating.
'The decisions reached by the United Kingdom coalition government reduce risks to the government's implementation of its June 2010 fiscal consolidation programme,' S&P said in a statement.
Finance minister George Osborne detailed plans last week that will chop almost 20% from the budgets of most government departments over the next four years, as well as reducing welfare payments. Britain's budget deficit hit 11% of GDP last year, but Osborne's June emergency budget set out measures to reduce this to almost zero over the coming years.