Brown's growth Christmas gift

CHANCELLOR Gordon Brown got the best Christmas present he could have hoped for today as new figures showed Britain's economic recovery gathering pace as the year draws to a close.

Official estimates of gross domestic product were raised for a second month in a row with National Statistics revealing the economy grew 0.8% in the third quarter against a previous 0.7% forecast.

The figures took City economists by surprise and it means Brown's widely criticised prediction earlier this year of GDP growth of 2% to 2.5% for 2003 is now almost certainly in the bag.

But it is also likely to cut the odds of another quarter point increase in interest rates early in the New Year as the Bank of England looks to control the speed of Britain's revival.

Philip Shaw at Investec, said: 'Survey data for the fourth quarter implies that output is even stronger now than the third quarter and, with the Bank concerned about a rapid pick-up in the pace of economic growth, it does appear a rate increase is on the cards for February.'

Much of the GDP boost came from the services sector, where output rose 0.9% in the three months to September, compared with a paltry 0.2% rise in the previous three months.

And fears over consumers' financial health are likely to be dampened by figures that showed household spending on 'recreation, culture, restaurants and hotels' rose by more than expected.

Disposable income edged up 1%, with the savings ratio increasing from 5.3% to 5.9%, suggesting homeowners may finally be taking notice of the constant stream of warnings over taking on too much debt.

Ciaran Barr, economist at Deutsche Bank, said: 'The consumer seems to be in a reasonable shape and income growth is starting to push up. This will not go unnoticed by the Bank of England.'

Today's figures take the annual GDP growth rate for the 12 months to September to 2.1% and are likely to temper concerns raised by a report yesterday that showed business investment is still in the doldrums.

Brown predicted in his Pre-Budget Report earlier this month that business investment would rise 0.75% next year as corporate profits improve, but it fell in the third quarter by 1%.

Britain remains on course to run up a record current account deficit in 2003. The gap spiralled to £8.1bn in the third quarter, up from £7.8bn in the previous three months, on less investment income from overseas.