October 2013 Monthly report: The UK, US and Eurozone are all on data watch

UK data releases have continued to provide upside surprise for the majority of September, keeping sterling on the front foot against the euro and US dollar. Sentiment has also improved, however the better sterling does, the more of a problem it causes for Carney. The big question is whether sterling can remain robust through this month also, or if this is too much to ask for.

Eurozone figures have been a bit more disappointing this month, and sterling has taken advantage of this, strengthening gradually as September progressed. Flash PMI data didn’t do the euro any favours either with manufacturing figures disappointing while the services figures have improved. The third consecutive win for German Chancellor Angela Merkel ensured policy consistency ultimately, benefitting the euro, although economic data must improve for the single currency to remain competitive.

September ended badly for the dollar and this month it all begins again. The Federal Reserve kept their asset purchase programme on hold for yet another month which weakened the dollar and sparked uncertainty about the strength of the US economy. Failure from the government to come to an agreement about the debt ceiling has also hurt greenback and the currency will be under huge pressure this month. Eyes will be glued on the US economic figures, although a partial shutdown may prevent important numbers such as non-farm employment data to be released. Provided US government can come to an agreement in time, and economic figures meet expectations, we may see taper talk brewing once again.

Can sterling keep it up for another month?

The standard the UK has set for itself over the past month has been a relatively high one, with economic figures continuing to provide upside surprise and further suggest a robust UK recovery. The main question for the UK this month is whether this impressive stream of figures can continue. Last month we saw the unemployment rate unexpectedly fall to 7.7%, as well as the claimant count figure drop by 32.6k, a significant driver of sterling momentum. If UK figures broadly provide the upside surprise that we have seen of late, we could see sterling continue to dominate against some of its major currency partners.

The Bank of England will announce the official bank rate for October on Thursday 10th (12:00), and the markets will definitely be listening attentively to the accompanying statement (if provided). The Governor is likely to reiterate the central bank’s dovish stance, and attempt to enforce the bank’s commitment to maintaining low rates in order to support the UK recovery. What’s even more interesting is the fact that the better the UK economy does, the more pressure is applied on BoE Governor Mark Carney in relation to the forward guidance he announced a few months ago. Questions have been brewing about whether the central bank can actually keep rates at 0.50% with inflation already above the central bank target and increasing economic activity likely to increase price pressure. As long as this month’s figures outperform, the market will continue to question forward guidance so we could see sterling continue to gain gradually in October.

GBP/EUR

Sterling still outpacing the euro
Impressive European data has been lacking for the majority of the month, with the euro missing out on some good opportunities to strengthen against sterling. German IFO business climate figures came in below expectations and Flash Manufacturing and Services PMI showed some imbalances in the development of the euro-area. French, German and the Eurozone aggregate manufacturing figures all came in short of estimates while services figures surprised to the upside, suggesting an uneven recovery. The ECB President Mario Draghi has done little to bolster the currency as his most recent speeches have emphasized the ECB’s willingness to use any instrument necessary to defend its monetary stance. Draghi highlighted that the recovery is still fragile and therefore maintaining low rates was crucial to stabilizing the eurozone economies. The ECB seem adamant to enforce that they do not want money markets to become too enthusiastic about the progress of the eurozone and that the central bank still has tools to prevent rising borrowing costs. The market will be following this rhetoric throughout October and economic releases will also be eyeballed to see if it continues to point to an improving euro area. Italian political instability will also be a hot topic for the month as the former Prime Minister Berlusconi called for elections “as soon as possible”. This has caused uncertainty and risks euro momentum if investors become increasingly worried about politics in the region’s third biggest economy. A UK economy which is building up steam, and a US economy which is flooded with tapering speculation may cloud any developments in the eurozone and therefore limit euro gains. We have already seen this reflected though GBP/EUR highs of 1.1988 in September, levels not seen in over six months. We expect the euro to be on the sidelines against sterling this month, gaining a little momentum on the back of better data releases and positive news. If US figures show an improving economy, especially better employment figures then euro could be no match for the dollar either.

GBP/USD

The Fed talk rambles on 

Last month we witnessed the dollar plummet as a result of the Fed holding stimulus constant for another month. After the announcement, various Fed members spoke and said that stronger economic signals were needed in order to warrant such an adjustment in Fed policy, in particular, more positive employment figures. Although the US unemployment rate is now down to 7.3% it was rather a result of lower labour participation than from more people finding jobs. US economic releases will be a focal point this month and as they improve, it is likely to spark tapering speculation once again, boosting dollar momentum. Non-farm employment figures and the unemployment rate due this week will be major drivers of dollar performance and could possibly set the tone for the rest of the month. Providing the possibility of a stimulus reduction remains on the table, even if it is a small taper, we should see the dollar begin to reverse losses seen last month.

However, October is also the deadline for the US government to come to a conclusion about the debt ceiling, and with the government already in partial shutdown, the release of fundamental figures such as US employment data could be hindered. With the market seeking this information in order to gauge the Federal Reserve’s next policy move the dollar will remain vulnerable at least until this is solved. The uncertainty surrounding the issue has increased demand for safe haven currencies such as the swiss franc and the yen and for now has drawn the attention away from the tapering debate. 

It will be a struggle for the dollar to rebound this month, as potential sterling gains and any upbeat figures from the eurozone will attempt to limit dollar strength. As long as the budget deal is reached in time, we maintain our view that greenback will push for a modest recovery in the weeks ahead.

GBP/EUR: 1.1950

GBP/USD: 1.6025

EURUSD: 1.3425

Sasha Nugent
Currency Analyst
Caxton FX

Caxton FX Weekly Report: US dollar attempts to recover

Sterling aims to hold on tight

Last week’s main market driver was the decision by the Federal Reserve to keep the asset purchase program unchanged for at least another month. The shocking decision allowed sterling to run away with the trophy, and it is with that trophy that sterling begins the week. With fewer UK releases, the pound could come under pressure after recent strength. Current account figures due on Thursday (09:30) will be the main release, although CBI realised sales on Wednesday (11.00) and the Final GDP q/q reading on Thursday (09:30) could possibly provide sterling with more support. Despite poor retail sales figures, the pound has remained resilient hanging on to some good levels against both the euro and the dollar. Some MPC members are due to speak and it will definitely be interesting what they have to say about the UK economy. The PMI figures for France, Germany and the Eurozone aggregate number provided mixed results keeping sterling in charge, however good German IFO business climate numbers could attempt to push the GBP/EUR rate lower. The GBP/USD rate could also adjust downwards provided US data releases provide upside surprise.

The euro’s chance to surprise markets
Angela Merkel managed to secure her position as the German Chancellor for her third consecutive term, a historic victory. Eurozone PMI figures showed uneven development with manufacturing sectors coming in below expectations, while the services sector figures beat estimates, dampening euro momentum. These figures highlight uneven progress in the eurozone economies. German IFO data tomorrow provides another opportunity for the euro to gain. ECB President Mario Draghi is due to make a speech on this afternoon and on Friday, which will most likely have an effect on the euro, possibly providing more insight on his perspective on the Eurozone economies. Although we expect the ECB President to display some positive light on the development of the euro area, Draghi may also remind the markets that the recovery is still extremely vulnerable limiting euro upside. We could potentially see a slight reversal in the EUR/USD rate this week, however this is dependent on the performance of US indicators.

A fresh start for greenback
This week the dollar has a chance to put its nightmares of last week behind. A slew of US data releases are due which could allow the dollar to pare back some of its losses against euro and sterling. Many Fed members are due to speak this week and hopefully this will help shed some light on the central bank’s thinking behind last week’s decision to hold QE3 constant. Fed member of St Louis James Bullard has already made a statement claiming that small tapering of quantitative easing is possible next month. After the cloud the Fed pulled over the US recovery last week, this week should see evidence begin to build once again in order to warrant tapering to begin in October. Upside surprise from CB consumer confidence figures as well as strong core durable goods orders and new homes sales, would contribute to putting the dollar on the right path to rebuilding earlier strength. We expect to see the GBP/USD and EUR/USD rate retract a marginally as the week progresses.

End of week forecast

GBP / EUR	1.1830
GBP / USD	1.5970
EUR / USD	1.3480
GBP / AUD	1.7050

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: Fed tapering decision weighs on greenback

Employment data was all Sterling needed

Although last week was a quiet week for UK data, claimant count figures gave sterling the boost it needed
to see the GBP/EUR rate touch the 1.19 mark. This week is a bit more eventful as Tuesday sees the release
of inflation figures at 09:30. This will be of particular interest as economic data has continuously pointed towards a stronger UK recovery, which has spurred doubt as to whether the timeframe given under forward guidance is appropriate. In a meeting with the Treasury committee, the central bank reinforced that if inflation breached the knockout condition of 2.5% in the medium-term, it would simply cause the monetary policy committee to assess why and then consider what action to take. A high inflation number may encourage speculation that the BoE will re-examine policy and ultimately raise rates earlier than the 2016 benchmark. The BoE monetary policy minutes due on Wednesday morning (09:30) will also be of interest, especially since the central bank didn't provide an accompanying statement following the announcement of the official bank rate. Retail sales figures released on Thursday are expected to follow the trend of recent UK figures and provide upside surprise. This should see sterling remain in control of the GBP/EUR rate, maintaining levels of 1.19 during the week. The GBP/USD rate will see a lot of volatility ahead of the all-important Federal Reserve meeting on Wednesday. The increasing likelihood that the Fed will delay tapering until at least the October meeting, creates a possibility sterling could maintain momentum against the US dollar.

Euro strength falters
Euro strength seen towards the end of August now seems like a distant memory. Since the start of September some eurozone fundamentals have been disappointing, allowing sterling to take advantage. This week sees the German ZEW Economic Sentiment due on Tuesday at 10:00, which is expected to improve to 45.3 from 42.0. Better eurozone figures are unlikely to provide the euro with much momentum, especially as negotiations regarding Portugal’s fiscal target are underway. Despite more disappointing US figures, the euro failed to capitalise and we doubt any eurozone releases will see the euro gain much ground. While we predict the single currency will remain on the back foot against sterling, it may stand more of a chance against the dollar if tapering doesn't begin this month. 

US dollar gets a battering 

The dollar took a beating last week, with sterling finishing off the job on Friday, pushing the GBP/USD rate to 1.5876. Poor US figures including non-farm payrolls figures and retail sales has contributed to the dollar’s downfall. The major driver of the greenback this week will be the outcome of the Federal Reserve meeting on Wednesday evening (7pm). A decision to reduce stimulus would see the US dollar rebound, while one to keep the asset purchase program on hold for at least another month could keep the currency vulnerable at least for this week. Dollar strength is mostly dependent on the Federal Reserve’s comments and actions. Even if the Fed decide not to go ahead with tapering this month it is still on the cards, and data from Wednesday onwards could be seen as another opportunity to warrant a reduction in stimulus to begin in October. For this reason we see the dollar remaining vulnerable for the earlier part of this week, with a slight window for strength as the weekend approaches.

End of week forecast

GBP / EUR	1.1950
GBP / USD	1.5855
EUR / USD	1.3275
GBP / AUD	1.7175

Sasha Nugent

Currency Analyst

Caxton FX 

A great week so far for sterling

This week the UK has produced outstanding PMI figures with manufacturing, construction and Service PMI figures all smashing estimates suggesting that the UK is healthier and more stable than we previously thought. The pound has stuck its tongue out at the euro as the upswing in positive data has been reflected in the GBPEUR rate racing past 1.18, highs not seen since May this year. Even against the US dollar, sterling has showed that it isn’t a pushover, and if the US dollar is to strengthen, the Fed better make up their mind about if and when they will taper stimulus this year. The UK’s top class performance prompted the Confederation of British Industry to increase their UK growth forecast last month. Optimism about the UK outlook has continued this week and yesterday the OECD (Organization for Economic Cooperation and Development) released its growth forecast for the UK raising their estimates to 1.5% yearly growth from an earlier prediction of 0.8%.

The BoE rate announcement on Thursday could pull a dark cloud over recent sterling performance. If Governor Carney talks that dovish talk then we could well see the pound fall back (we may finally be convinced). Nevertheless, what the FX market cannot deny is that the outlook for the UK definitely deserves a thumbs up. Assuming it continues in this direction Carney’s commitment low interest rates may become questionable, and the market will not hesitate to give him a run for his money. After all, we haven’t even begun to rip apart effects to inflation, only then will his true colours have to show and we will see whether Carney can actually walk the walk.

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: UK outlook remains upbeat

UK PMI figures to support growth

This week is a fairly big week for the pound as a slew of UK PMI data will be released throughout the week as well as the all important rate announcement scheduled for midday Thursday. Construction and services PMI figures are expected to show expansion in all three industries whilst today’s release of manufacturing PMI was the highest in over 2 years, pointing to stable growth. Positive readings will increase speculation that the base interest rate may rise earlier than the BoE has predicted. The rate announcement due on Thursday is unlikely to see the central bank alter the base rate, however, the market will be listening attentively to the comments made by Carney following the release. After Carney’s speech last week we doubt anything said in Thursday’s accompanying statement will differ, however, the governor may use this opportunity to address the rising market rates. For the time being we feel that the pound will benefit from good data releases, rising gradually over the course of the week.

Could September be the month for QE tapering?

August ended on a high for the US dollar when preliminary GDP figures surprised to the upside reporting a 2.5%q/q increase. This contributes to mounting evidence that the US economy is experiencing a solid recovery. The US will release ISM manufacturing figures tomorrow, while other important figures such as unemployment claims, the unemployment rate and non-farm employment change are published later in the week. As the Federal Reserve monetary policy meeting draws closer, these figures will be of even more significance as they will either support the Fed’s case for reducing stimulus, or encourage policy to remain on hold. If data continues to surprise to the upside ahead of the September 18 meeting it will increase speculation that tapering could begin as soon as this month. Although mixed data results may suggest the will Fed hold off on reducing its quantitative easing programme for a little longer, the overall outlook for the US is still very positive and therefore we expect US dollar gains to continue gradually throughout the week.


Positive Spanish and Italian PMI data kick start a potentially good week for the Euro

The eurozone has been producing some good data of late which in response has resulted in the euro preventing sterling from extending gains. This morning Spanish and Italian PMI data was released showing the manufacturing sector expanded with both figures beating estimates at 51.1 and 51.3 respectively. These results indicate that growth in the manufacturing sector is visible across a number of the eurozone nations with even Greece’s decline easing. Services PMI data for Spain and Italy will be published later this week as well as retail sales and German industrial production. The main event this week will be the ECB rate announcement on Thursday, and although no change in policy is expected, it will be interesting to hear the views from the monetary policy committee on the state of eurozone economies. Although recent indications point to the eurozone stabilizing, with the outlook for the UK looking brighter and the US considering winding down their asset purchasing program, loopholes in other euro area fundamentals mean the odds are not in the euro’s favour. Good eurozone figures this week could limit sterling and US dollar gains but we do not see the euro strengthening considerably this week.

End of week forecast

GBP / EUR	1.18
GBP / USD	1.5475
EUR / USD	1.3190
GBP / AUD	1.7450

Sasha Nugent

Currency Analyst

Caxton FX

November Outlook: Euro set to decline

After some weak figures from the UK economy to kick October off, we have enjoyed a pretty steady flow of positive domestic news. The highlight has been the recent preliminary UK GDP figure for Q3, which indicated growth of 1.0%, almost doubling expectations. With headlines surrounding the UK economy’s emergence from recession, sterling has enjoyed some renewed interest, though with domestic growth so far this year almost completely flat, you don’t have to look far to find the sceptics.

As far as the US economy is concerned, conditions are certainly perking up. The recent advance US GDP figure for Q3 revealed annualised growth of 2.0%, so it was a case of anything the UK can do, the US can do better.  The Fed will also be encouraged by significant improvements in the US labour market. It appears that the recovery of the world’s No.1 economy from its mid-year slump, albeit later than expected, is well under way. Nonetheless, the risk of the US fiscal cliff continues to pose serious threats to US and indeed global growth in 2013.

It has been fairly quiet on the eurozone front in recent weeks. Spain remains frustratingly tight-lipped on the issue of a bailout request. However, we are heading into a crucial week in which the Greek parliament will decide whether or not to approve an austerity package that is essential to the release of the country’s next tranche of aid.

GBP/EUR

Sterling benefits as UK exits recession

Sterling spent much of October under pressure against the euro, with no major panic headlines emerging out of the debt crisis. Disappointing domestic data also kept sterling pinned well below the €1.25 level for long periods, with the services, construction and manufacturing sector updates all disappointing.

However, we have seen a decent turnaround in figures in the past fortnight or so, which has provided sterling with renewed support. The labour market continues to make impressive strides, as shown by the unexpected dip in the UK unemployment rate to a 13-month low of 7.9%, while retail sales were also in good shape in September. These figures were topped off by a 1.0% preliminary UK GDP figure, which was well above the 0.6% estimates that were prevailing in the build-up. With the data revealing that the negative growth that dominated the first half of the year has been recouped, the UK government enjoyed a rare sigh of relief.

MPC to vote against QE this month

This all leaves the Bank of England interestingly poised in terms of its next move. MPC members have been quick to warn that we can expect a much weaker growth figure from the fourth quarter, once the temporary factors of the Olympics and the bounce back from the extra Q2 Jubilee bank holiday are discounted. However, judging by the minutes from last month’s MPC meeting, not only is the MPC split on the desirability of another dose of quantitative easing, but there appears to be plenty of scepticsm with respect to the usefulness of such a move. In addition, there have been hints that the government’s Funding for Lending initiative, where bank lending is incentivised, is making a real difference.

There is plenty of reason to suspect that last quarter’s GDP figure was a temporary surge for an economy that still needs nurturing back to health. The latest updates from the services sector suggests the UK has made a soft start to Q4 but we nevertheless expect the MPC doves to fail to muster a majority vote in favour of QE this week.

Greece vote gets euro nerves jangling again

As far as the euro is concerned, focus has centred on the familiar issues of Greece, Spain and deteriorating eurozone growth. Greece will dominate the eurozone headlines this week, with PM Samaras presenting a controversial package of fresh austerity measures which will be voted on by the Greek parliament later this week. The vote will come right down to the wire, though we are expecting the package to be approved.

We are sticking to the ‘muddling through” assumption that Greece will do what is demanded of it and in turn will receive some concessions, along the lines of lower interest rates, extended loan maturities and extended austerity deadlines. The stakes are simply too high to allow the Greek saga to blow up again.

With Spanish bond yields coming away from the dangerous 7.0% mark in the aftermath of ECB President Draghi’s pledge to buy up unlimited peripheral debt, the pressure on PM Rajoy to request a bailout has eased somewhat. However, the market is likely to take an increasingly dim view of Rajoy’s ongoing procrastination through November (talk has emerged that he will wait until next year). Ratings agency Moody’s handed Spain some breathing space last month, sparing it the blow of downgrading its debt to ‘junk’ status but there is little doubt it will wield its axe once again if progress fails to emerge.

As ever, major concerns are stemming from the deteriorating state of eurozone growth, as the region is dealt round after round of austerity. Whilst the ECB now looks set to hold off from cutting interest rates until next year, declining demand from peripheral eurozone nations continues to filter into weakness in the eurozone’s core. German figures were yet again poor in October, compounding fears that the powerhouse economy is heading into recession. The region’s declining economy is really showing few bright spots, while the headlines out of the UK economy contrastingly highlight its re-emergence from recession.

Sterling is trading just below the key €1.25 (80p) level and direction from here over the coming weeks will really depend on whether the pound can make a sustained move north of this benchmark. We can’t discount another move back down towards €1.23 but we maintain expectations for this pair to move above €1.25 in the coming weeks.

GBP/USD

Dollar to benefit from upturn in US growth

Sterling has traded very positively against the USD in recent weeks but has finally suffered a downward correction in the past week. GBP/USD is still only a couple of cents off April’s multi-month highs above $1.62 with stronger UK data and diminishing risks of QE providing the pound with plenty of support at $1.60, just when a move back down to the $1.50s has looked on the cards.

The USD is attracting increased demand at present on the back of some strong US economic figures. The US unemployment rate fell to 7.8% in September, the lowest level seen in almost four years (though this bounced up to 7.9% in October). The advance US GDP figure for the third quarter came in above expectations at 2.0% (annualised), powered by a surge in consumer spending and a temporary boost from defence spending. November’s excellent employment update, suggests we can expect further improvements over Q4.

Global concerns to highlight dollar’s safe-haven status

With the fiscal cliff a month closer, so too are the risks of a massive hit to US growth. This in our view will increase appetite for the safe-haven US dollar as we approach year-end. Meanwhile, we are struggling for progress on the Spanish debt/growth problem and broader concerns with global growth should also underpin the greenback.

Whilst the US Federal Reserve is engaging in QE3, the US economy is still outpacing the UK by some distance and we believe this will soon be reflected in some dollar strength. The UK’s last GDP figure may have been impressive (1.0% in Q3) but looking at the year to date, growth has essentially flat lined and with the eurozone recession deepening, major risks to domestic growth remain.

This week’s US Presidential election makes short-term swings highly probable and highly unpredictable. Not only is it unclear how the dollar will react to whoever wins but there is also the issue of which party will control Congress. Our conservative bet is that the status quo will broadly remain, with Obama emerging victorious but with doubts remaining over his ability to strike a deal to avert the fiscal cliff. We maintain our position that that we will see this pair spend most of the rest of the year below $1.60. Sterling’s two-month low of $1.5920 should be tested soon and we believe this will ultimately be broken, paving the way for move back into the mid-$1.50s.

1-month Outlook

GBP/USD:  1.58

GBP/EUR: 1.2550

EUR/USD: 1.26

Richard Driver 

Currency Analyst

Caxton FX

Caxton FX Weekly Round-up: MPC minutes and UK budget in focus

Dollar struggling to sustain the gains that data would indicate

The US dollar has recently posted ten and eighteen-day low against both the euro and the pound respectively. This belies the excellent growth data that has been surfacing from the US throughout March.

The highlights from last week included some strong US retail sales numbers, a positive US bank stress test result and some further impressive US manufacturing growth figures. The dollar sold-off on Friday however, largely a as a result of the softer-than-expected US inflation figure, which caused some players to revise their bets on the likelihood of ‘QE3’ from the US Federal Reserve.

Fed Chairman has indicated that QE3 is unlikely to be adopted and we maintain this view, which should aid the dollar this year. As the Fed’s Dudley reminded us yesterday, this is all contingent on the maintenance of the uptrend we are seeing in the US economy. Despite Friday’s poor US consumer confidence figure, there is little need to revise our bullish expectations for US GDP in 2012.

MPC minutes and UK annual budget comes into view

Bouncing back from last week’s poor UK unemployment figures and Fitch’s downgrade to the UK’s rating outlook, the pound has made an excellent start to the week. Taken against a basket of 13 major currencies, GBP is trading at its strongest level in over a year. However, the release of the minutes from the Monetary Policy Committee’s March meeting represents a risk event for the pound.

The impact of the minutes on the pound will be dictated by the tone struck with regard to the UK economy and the voting pattern with regard to increasing the Bank of England’s ongoing quantitative easing programme. Today’s UK inflation data revealed a further decline in price pressures to 3.4% (y/y), which highlights the scope for further QE should the MPC feel it necessary. King has indicated that enough QE has been done but the uncertain outlook for the UK economy will certainly keep UK data (such as Thursday’s UK retail sales figure) in focus in the coming months. Nonetheless, the slight uptrend in UK growth should improve the chances of a less dovish, sterling-positive MPC minutes release.

The UK Annual Budget announcement from Chancellor George Osborne will also be eyed closely on Wednesday lunchtime. In light of Fitch’s warning that the UK could lose its coveted AAA credit rating, Osborne is likely to ‘stick to his guns’ with regard to his austerity programme.

GBP may benefit from some support if Osborne can convince the markets that he can fuel UK growth amid ongoing belt-tightening. While significant domestically, there may well have to be some major headlines out of Osborne’s budget in order to cause much of a stir in the currency markets.

Sterling made another attempt at the $1.60 level on Monday but once again fell short, which could signal another move lower for GBP/USD, which currently trades just below $1.59. Against the euro, sterling is trading firmly around €1.20, though once again progress is stalling at these levels close to multi-month highs. With eurozone growth data likely to be weak on Thursday, we continue to look for stronger GBP/EUR levels and lower GBP/USD levels.

End of week forecast
GBP / EUR 1.2075

GBP / USD 1.5675
EUR / USD 1.31
GBP / AUD 1.5250

Richard Driver
Currency Analyst
Caxton FX

Four straight months of diminishing growth for the UK’s ailing manufacturing sector

May was the fourth month in a row that growth in the UK manufacturing sector decreased. If manufacturing growth continues to slow, it won’t be long before we are in contraction.
Today’s PMI data showed the weakest monthly growth since December 2009. No one expected the data to be good, as forecasts were generally pessimistic - but the results are even more alarming for the UK’s economic outlook.

Sterling has taken a major hit in response - dropping by almost a cent against the US dollar, and by half a cent against the euro. All this does is place further doubts over the strength of the UK’s economic recovery, pushing back expectations of a long-awaited Bank of England rate rise. Some players bet on a rate rise at the end of this year, but as things stand we are likely to have to wait until the end of the first quarter of 2012.

With the rate of growth in the construction and services sectors expected to be flat this week, we may have to wait even longer for some positive data. Today’s data doesn’t bode well for UK growth in the second quarter - we are in dire need of an upside surprise from the services sector.