Rate cut hopes fade on rethink

BRITAIN'S economy grew by a healthy 0.5% in the third quarter of the year, Government statisticians confirmed, virtually ruling out a cut in interest rates in the New Year.

The year-on-year rate of increase was nudged up from a previous estimate of 2.1% to 2.2%. Many City economists had thought the figures would be lowered.

'This paints a pretty good outlook for the economy,' said economist Arjun Mittal at American Express. 'After this upward revision, and the positive signs we have seen from other parts of the economy, I think the Bank of England has enough time to sit on its hands, see how the world develops and if need be cut interest rates. But we might be at the bottom of the rate cycle.'

The figures showed consumers are saving less, as low interest rates encouraging spending and borrowing, not hoarding. The savings ratio fell to 4.2% compared with 5.9% in the previous quarter and 9.5% in 1997.

Separate figures showed Britain recorded a current account deficit of £2bn in the third quarter, well down from the £4.6bn deficit of the previous quarter. The Treasury's coffers plunged £5.7bn into the red in November as public spending surged and tax receipts fell.