Britain has been understating its economic growth since 2001, official figures showed on Friday, suggesting the Bank of England may have grounds for concern over diminishing spare capacity in the economy.
British gross domestic product rose by 0.7 percent in the first quarter, leaving it 2.3 percent higher than a year earlier compared with economists' expectations of no revision to the initial estimate of 0.6 percent.
The figures sent sterling up a third of a US cent as dealers reckoned it increased the possibility of an interest rate hike before the end of the year because of the risk lower spare capacity meant increased inflation pressures.
Policymakers will take particular note that growth in the years going back to 2001 was revised up by a cumulative 0.55 percentage points with last year now recording a 1.9 percent expansion. "With the MPC concerned about spare capacity, this could have a significant impact on their thinking," said Philip Shaw, chief economist at Investec.
All 47 analysts polled by Reuters on Thursday predicted the BoE would leave borrowing costs pegged at 4.5 percent next week, where they have been since last August. But 24 of 46 expected a quarter-point hike by March next year.
BoE policymakers may also be pleased that consumer spending was marked higher in the first quarter, to a rate of 0.3 percent as they had noted at their last meeting that the initial estimate of 0.2 percent looked weak.
While the ONS' rewriting of economic history still does not bring last year's expansion up to the forecast levels, it shows that growth was not as poor as originally feared.
Separately, the ONS released data on the balance of payments. The current account recorded a deficit of 8.3 billion pounds in the first quarter, slightly narrower than the 9.1 billion pounds seen in the fourth quarter.