UK growth was surprisingly robust in the final quarter of 2017 as Britain's dominant services sectors picked up the pace to help offset a fall in construction output.
Quarter-on-quarter gross domestic product growth picked up to 0.5% in the October-December period, up from 0.4% in the preceding quarter and beating expectations that it would remain at 0.4%.
Service sector growth
Much of the underlying strength in the data came from the services sectors, where output rose by 0.6% quarter-on-quarter, while the industrial sector - despite declining mining output - rose 0.6% also.
These areas of growth helped offset a 1% fall in construction sector output, the third-successive fall as commercial and civil engineering projects were put on hold amid Brexit uncertainty.
Annual growth disappoints
The annual rate of growth, however, slowed to 1.5% in the final three months, from 1.7% in the third quarter, but beat expectations of a slowdown to 1.4%.
"The positive print is another highlight of the UK’s post-Brexit economic resilience, with its dominant services sector again shown to be doing the heavy lifting," said Jake Trask, research director at OFX.
Lucy O'Carroll, chief economist at Aberdeen Standard Investments, was less impressed: "The quarterly number may have been a little better than expected, but that doesn’t change the overall growth story.
"2017 was pretty disappointing, with the UK putting in its weakest growth performance in five years. This is not impressive for a small, open economy that would normally expect to be benefiting from 2017’s healthy global pick-up."
Chris Williamson at IHS Markit agreed: "The UK economy enjoyed further resilient growth in the closing quarter of 2017, though the upturn failed to prevent the country avoiding the worst annual performance for five years."
Interest rate expectations
Market reaction from the pound suggested the fourth-quarter print looked strong enough to convince the Bank of England that another interest rate increase could be made in 2018 without damaging growth prospects.
"Today’s strong data mean we are pulling forward our forecast for the next interest rate rise to August, from November," said Samuel Tombs, UK economist at Pantheon Macroeconomics.
"The market currently has an expectation of one increase in August," said Richard Stone, chief executive of The Share Centre.
"We continue to believe the UK economy will perform more strongly than expected and with earnings growth increasing, employment continuing to rise and inflation peaking, the Bank of England may well look to move rates higher more quickly with an initial rise coming earlier than August and the potential for a second rise later in the year."
Sterling made strong gains on currency exchanges. The pound rose 0.8% to $1.4250 against the dollar and was up 0.32% to €1.1445 versus the euro.