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Economy in Brief

Strong Growth Raises Prospects of Higher Interest Rates in the UK but the Strong Pound Suggests Restraint
by Louise Curley January 26, 2004

Gross domestic product in the United Kingdom rose at an annual rate of 3.8% in the fourth quarter, the strongest rate of increase since early 2000. For the year as a whole, the rate of increase was 2.17%.

The acceleration in growth has raised speculations that the Bank of England, which had raised its base rate to 3.75% from 3.50% in November may increase it once again when its monetary policy committee meets in February. However, the pound has been rising steadily through the year and at year end was worth $1.79 the highest since December, 1991. A rise in interest rates would tend to strengthen the pound further, which in turn would discourage exports and dampen activity in the manufacturing sector which has only recently begun to recover.

United Kingdom 4Q 03 3Q 03 2Q 03 1Q 03 2003 2002 2001 2000
Real GDP growth (annual rate) 3.81% 3.06% 2.31% 0.77% 2.175 1.66% 2.15% 3.76%
Pound/US $ (end of period) $1.79 $1.66 $1.65 $1.58 $1.79 $1.61 $1.46 $1.50
BOE base rate (end of period) 3.75% 3.50% 3.75% 3.75% 3.75% 4.0% 4.0% 6.05%
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