As suspected – revision of our GDP figure was less than positive (quite literally) as official data showed today that underlying growth was marginally weaker than previously thought in Q4, having been revised down to -0.6% from -0.5%.
The figure will add further credence to the 6 dovish leaning members of the MPC, who wanted to wait and see how the economy faired before jumping in to vote for an interest rate increase, but what will the implications of this be?
The market reaction saw the pound fall further across the board, reaching a month low versus the euro as traders took advantage of the figure and liquidated their long sterling positions. They now have to assess whether this dip in growth will change the prospects for the interest rate outlook.
It’s unlikely that a figure from last year will have too much bearing on rate expectations, particularly as Q1 2011 has gotten off to a solid start. Andrew Sentance et al I’m sure will merely shrug this figure off and put it down to snow-related disruptions. Traders have however pared back expectations for a 25 basis-point increase from May to June.
We now look forward to another busy week. Highlights include Britain’s PMI figures across the manufacturing, services and construction sectors due on consecutive days mid-week. After January’s positive results, (which lent a helping hand to the pound), we could well see further positive figures this month, buoying hopes that the economy will return to growth in the opening quarter of the year. We also have three central bank announcements on the calendar: the Reserve Bank of Australia , Bank of Canada and European Central Bank. However, no changes are expected.
The week’s headline comes right at the end in the form of US non-farm payrolls. Each month the hype in the market gets inflated as the release approaches, but more often than not price action is underwhelming. Nonetheless, US non-farms nearly always bring about an excitable market – no let up volatility approaching just yet.
Any thoughts or comments are always welcome!
Edward Knox
Analyst - Caxton FX
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