The British economy grew faster than previously thought in the third quarter while the current account gap rose to its highest in more than five years, official data showed yesterday.

The Office for National Statistics (ONS) said gross domestic product grew by 0.5 per cent in the third quarter, up from 0.4 per cent initially reported and expected by analysts.

This was still the weakest since the second quarter of last year and a sharp slowdown from 0.9 per cent in the second quarter.

The revision was driven by higher estimates of production, construction and services but should come as no surprise to Bank of England policymakers who had long complained that the preliminary estimates of third quarter growth looked too low.

"We've seen an upward revision in household spending and investment and a down revision to stockbuilding, leaving final domestic demand appreciably stronger than we thought it was a month ago," said Mr Philip Shaw, chief economist at Investec.

Recent data have suggested the economy picked up in the fourth quarter, backing the Bank of England's forecast that growth would return to the long-term trend rate in the last three months of the year.

Economists are divided on whether interest rates have peaked at 4.75 per cent. But minutes of policymakers' December meeting published on Wednesday suggested to some that the next move might be down, given that there was mention of a cut.

Separately, the ONS said the current account deficit widened to £8.77 billion (€12.38 million)from £5.8 billion in the second quarter as there was broad deterioration across all accounts, particularly as UK companies paid foreign shareholders dividends on their stock.

This was the highest quarterly deficit in sterling terms since the record first quarter of 1999 and sent the pound down against the dollar. As a percentage of GDP, however, the deficit stood at just 3 per cent, well short of the record 4 per cent in the first three months of 1999 and half the rate of the giant US current account gap. - (Reuters)