Year-on-year growth of 2.2-percent exactly matched the Bank of England's forecast... reinforcing expectations that interest rates are set to remain unchanged for several more months to come.
Future growth still depends critically on developments in consumer spending, and we suspect that this will be relatively muted over the coming months.
We suspect economic activity over much of 2006 will be held back by sluggish consumer spending and that the Bank of England's growth forecast will prove to be too optimistic.
Going forward, UK exporters will be fervently hoping that recent signs of improving growth in Western Europe will be sustained and will increasingly feed through to boost exports,
Manufacturers will be hoping that healthier growth in the euro zone and a recently softer pound will increasingly feed through to give them with a significant boost in 2006.
This subdued growth is expected to help to contain underlying inflationary pressures and risks, underpinning our belief that interest rates will be cut by a further 25 basis points in February or March.
With economic growth likely to remain below trend in the near term at least and unemployment set to continue rising, there is a very real danger that individual insolvencies and mortgage repossessions will climb markedly further over the coming months.
This underpins our belief that the Bank of England is too optimistic on the growth outlook and will eventually end up trimming interest rates by a further 25 basis points.
Euro region labor markets are finally beginning to see genuine, if somewhat limited, improvement, boosted by the pickup in growth since mid-2005. Rising employment is key to boosting consumer spending across the euro region.
The sector may see modest expansion in the first quarter of 2006, having been a major drag on overall growth in the fourth quarter.
The slowdown in euro zone growth will not deter the ECB from raising interest rates in March and a further hike remains very likely in June.
Pretty healthy retail sales growth in November reinforces belief that consumer spending is picking up to some extent, and reduces the case for a near-term interest rate cut.
Consumer credit growth was again relatively muted in September, pointing to continuing consumer caution,
The Bank of England currently seems unlikely to act before August given that growth in the first quarter appears to have been around trend, while survey evidence indicates that inflationary expectations have risen recently.
The combination of rising unemployment, falling employment and muted earnings growth is hardly supportive for consumer spending. It reinforces our belief that overall growth will be softer than forecast by the Bank of England and that underlying inflationary pressures will remain muted.