Forex News –UK economy growing nicely Q4 statistics show
January 28, 2014 2:45 pm
(click to enlarge)
The announcement of 4th quarter GDP growth for the United Kingdom was encouraging as it showed the economy growing by 0.7% quarter-on-quarter and 2.8% year-on-year. The quarterly growth rate of 0.7% was a touch lower than 0.8% of the previous quarter but right in line with economists’ expectations.
The UK economy posted overall growth for 2013 of 1.9%, which, as the chart above shows, was the highest since 2007. 2014 is expected to be even better according to the predictions of the IMF, as the UK is expected to post a growth rate of 2.4%.
Business services and the financial sector made up approximately half of the 0.7% growth rate. Industrial output was a positive contributor but a little slower compared to the previous quarter. Construction made a negative contribution because of a weak November. Construction should make positive contributions looking ahead.
The GDP figures have again focused the debate on interest rates in the UK. Most economists are expecting a rate hike to occur in 2015, although according to a Reuters’ poll of economists there is a 30% chance that interest rates could start to rise in 2014.
Looking ahead, next week’s Bank of England meeting is expected to be key in perhaps reshaping the forward guidance rule as unemployment has dropped to 7.1% – only marginally above the 7% threshold that the Bank set only back in the summer.
The week after that could yield additional clues as the Bank’s quarterly inflation report is released and the Bank’s Governor will present it before the press.
With respect to sterling, it was a case of buy the rumor- sell the fact, as traders bought the UK currency in anticipation of a stronger-than-expected number. When that failed to materialize, there was some selling. Overall though sentiment towards sterling remains positive and that could help it make further gains, especially if strong UK economic statistics also help. The only cautionary note should be that the Bank would like to keep sterling low in order to keep UK exports more competitive and to help the economy grow in a more balanced way.
(click to enlarge)
The announcement of 4th quarter GDP growth for the United Kingdom was encouraging as it showed the economy growing by 0.7% quarter-on-quarter and 2.8% year-on-year. The quarterly growth rate of 0.7% was a touch lower than 0.8% of the previous quarter but right in line with economists’ expectations.
The UK economy posted overall growth for 2013 of 1.9%, which, as the chart above shows, was the highest since 2007. 2014 is expected to be even better according to the predictions of the IMF, as the UK is expected to post a growth rate of 2.4%.
Business services and the financial sector made up approximately half of the 0.7% growth rate. Industrial output was a positive contributor but a little slower compared to the previous quarter. Construction made a negative contribution because of a weak November. Construction should make positive contributions looking ahead.
The GDP figures have again focused the debate on interest rates in the UK. Most economists are expecting a rate hike to occur in 2015, although according to a Reuters’ poll of economists there is a 30% chance that interest rates could start to rise in 2014.
Looking ahead, next week’s Bank of England meeting is expected to be key in perhaps reshaping the forward guidance rule as unemployment has dropped to 7.1% – only marginally above the 7% threshold that the Bank set only back in the summer.
The week after that could yield additional clues as the Bank’s quarterly inflation report is released and the Bank’s Governor will present it before the press.
With respect to sterling, it was a case of buy the rumor- sell the fact, as traders bought the UK currency in anticipation of a stronger-than-expected number. When that failed to materialize, there was some selling. Overall though sentiment towards sterling remains positive and that could help it make further gains, especially if strong UK economic statistics also help. The only cautionary note should be that the Bank would like to keep sterling low in order to keep UK exports more competitive and to help the economy grow in a more balanced way.
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