Britain’s Economy Grows 0.2%- Pound Jumps Six Week High

By Author: russelmori
Total Articles: 25
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At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.
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Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions,income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

Yesterday saw the release of UK GDP which as expected confirmed Britain’s economy grew by just 0.2% in the last quarter, slower than in the first three months of 2011. Although GDP expanded by just 0.2%, the office for National Statistics estimated that if it was not for the special factors such as the royal wedding, Olympic ticket sales and the Japanese tsunami, growth could have been as high as 0.7%. “This sets the stage for a ...
... potential solid third quarter GDP report” a European economist at Credit Suisse, said.

This helped the pound jump to a six week high against a broadly weaker dollar to $1.6420 in early trading as investors were bracing themselves for a weaker figure. Sterling’s gains were aided by a slump in the US dollar as US lawmakers remained in deadlock in talks over raising the debt ceiling only a week before deadline to act. The ONS’s first estimate of GDP is made up with 40% of the final data and may be revised in the next two months, but it was published in line with consensus. Several economists had expected the economy to contract, due largely to the weak state of household finances. George Osborne and Vince Cable use the figures to reiterate that the Government would not be deflected from its £110bn austerely programme.

“The positive news is that the British economy is continuing to grow and is creating jobs,” the Chancellor said. “Our economy is stable at this time because this Government has taken the difficult decisions to get to grips with Britain’s debts. Abandoning that now, as some argue we should, would only risk British jobs and growth.”

Across the pond we saw a number of important releases that showed consumer confidence unexpectedly improve in July, New home sales fell in June and existing home sales were flat in May. The unexpected improvement in consumer confidence in July was concentrated in an improvement in the “expectations” component. The increase in consumer confidence in July marks a break from the near-term downward trend that has been evident since the sentiment gauge hit a three year high of 72.0 in February. In a separate release the pace of new homes sales slipped 1% to 312,000 in June following a 0.6% decline to a downwardly
revised 315,000 level in May.

IN THE UK
• UK GDP comes in line with consensus at 0.2% helping sterling climb against a basket of currencies as the majority of market participants had expected a flat or even negative result.
• Sterling climbs to 1.6420 a six week high against a broadly weaker dollar.
• Many expects think if the Royal Wedding and Tsunami did not happen GDP could have hit 0.7%, all eyes will now be on the third quarter reading.
• Sterling recovered losses made against the euro in late Monday trading to hit a high of 1.1340.

ELSEWHERE
• US Dollar is still being hurt as US lawmakers remain in a deadlock in talks over raising the debt ceiling. There are now only 6 days left to reach an agreement before all the money runs out and the US heads towards default.
• Spain, Italy debt sales show Eurozone relief fading.
• US consumer confidence unexpectedly improves in July but New homes sales add to the dollar woes showing a fall in June
• The Australian Dollar rises in Asian trading this morning as CPI figures are released higher than expected, prompting the markets to expect another interest rate rise by Q4 at the latest. GBP/AUD drops into the 1.48’s.
• Japan’s economic worries continue as IMF’s Lagarde suggested they will need financial intervention to tackle economic crisis after the tsunami.

DATA TO LOOK OUT FOR
• UK CBI Industrial Trends Survey expected to come in at -3%, the results tend not to have much impact on sterling strength but could help it if the published figure is higher than expected.
• MPC member David Miles speaks, any negative tone towards sterling will send it crashing
• US Durable goods orders out at 1.30pm, this measures the cost of orders received by manufactures for durable goods and is expected to fall sharply to 0.4%
• This evening at 7.00pm US beige book figures are released, this reports on the current US economic situation and will highlight the weak sectors.

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.
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Russel Mori writes for Gerard Associates LTD, for more information on QROPS, QROPS Pensions, QROPS List, QROPS Providers, QROPS Guernsey info available online.