Oct. 26 (Bloomberg) -- The pound surged and gilts dropped after Britain's economy grew at double the pace forecast by economists in the third quarter and the nation's credit outlook was raised at Standard & Poor's. Sterling rose against all 16 of its most-traded peers after gross domestic product rose 0.8 percent in the three months through September, the Office for National Statistics said in London today. The statement damped concern the Bank of England will restart bond-purchases to support the recovery as the government prepares to begin spending cuts to tackle a record 156 billion-pound ($247 billion) deficit. It compares with a 0.4 percent median forecast of 35 economists surveyed by Bloomberg. S&P, which affirmed its AAA rating on U.K. debt, today restored its outlook to "stable" from "negative." "It's more good news for the pound today," said Steve Barrow, head of Group of 10 foreign-exchange research at Standard Bank in London. "Revising the outlook is as much a function of what's happened with economic growth as the cuts announced in the spending review." Sterling appreciated 1.2 percent against Europe's 16-nation currency to 87.75 pence as of 12:42 p.m. in London, its biggest intraday gain since Sept. 7. It also climbed 0.9 percent against the dollar to $1.5868 and 1.5 percent to 128.93 yen. The pound has depreciated 5 percent this year against a basket of its developed-country peers, according to Bloomberg Correlation-Weighted Currency Indexes, making it the second- worst performing currency, after the euro. QE Concern U.K. government bonds dropped after the GDP release, which was the first quarterly report from a Group of Seven nation and came as central banks around the world debate whether to add more stimulus through asset-purchase programs, known as quantitative easing, to aid a faltering global recovery. "The GDP data is very significant as in the market's mind it clearly does reduce the prospect of QE," said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. "However, it's only one release and the BOE is not going to rule easing out based on this -- they're going to want more evidence that it can be sustained." BOE Monetary Policy Committee member Adam Posen voted to boost QE by 50 billion pounds at the last rate meeting and last week said the recovery in the economy appears "patchy." "It will be increasingly difficult for Mr. Posen to get enough of the MPC onside to push through QE at this stage," said Jeremy Stretch, executive director of foreign-exchange strategy at CIBC World Markets in London. "They've got an opportunity to pause now until the end of the year to see how the consumer holds up after the spending review cuts." Outlook Raised Chancellor of the Exchequer George Osborne said on Sky News that the S&P move was a "vote of confidence" in the coalition government in a "double dose of good news" for the economy. The Chancellor on Oct. 20 detailed a program to axe half a million public-sector jobs and cut spending by 81 billion pounds over five years. "The coalition parties have shown a high degree of cohesion in putting the U.K.'s public finances onto what we view to be a more sustainable footing," S&P said in an e-mailed statement. S&P said in May last year that Britain was at risk of a downgrade. Gilts slumped, pushing the 10-year yield 15 basis points higher to 3.06 percent. Two-year note yields rose nine basis points to 0.73 percent, the highest since Sept. 21. Gilts returned investors 9.7 percent since the end of 2009, beating an 8.3 percent gain from German debt, and 8.8 percent from U.S. Treasuries, according to indexes compiled by Bloomberg and the Federation of Financial Analysts Societies.

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