This morning’s long awaited GDP figure has revealed that the UK economy only grew by 0.2% in the first three months of 2010.
Even though the percentage shows a continued move away from recession, market consensus was that GDP would be 0.4%. The pound slipped back half a cent against the euro in the immediate aftermath, falling from this morning’s high above 1.16.
Duncan Higgins, senior analyst at Caxton FX commented, “Market data this week has been encouraging for the UK and so this figure will certainly come as a disappointment. It also reveals that the economic recovery has slowed since the last quarter of 2009 when the economy grew by 0.4%. There may be revisions, but it is clear that Britain’s recovery is still set to be protracted, significantly lagging other G7 economies. ”
The data could also have a notable impact on the upcoming election, with each party looking to benefit.
“It works in favour of the Conservatives who can highlight the continued weakness of the recovery under a Labour government. However, Brown may try and work it to his advantage, emphasising the danger of implementing spending cuts before the recovery is fully cemented,” explains Higgins.
The market has understandably taken sterling lower in the wake of the release. However, movement has not been significant since the market may be anticipating an upward revision. The estimate of economic growth in the fourth quarter of 2009 was revised up from 0.1% to 0.4%.
Duncan Higgins adds, “Given the run against the euro this week, there was always a risk that a weak GDP would trigger profit taking. However, with the situation in Greece growing ever more precarious, the pound is unlikely to slip sharply in the near term.”
The pound is currently holding above €1.15 against the euro. Latest reports suggest that Greece will request activation of the EU/IMF package later today, which may offer slender support. Against the US dollar, the pound is not dropping sharply, with the price holding in the mid 1.53s.
