The estimate for UK Q4 GDP missed expectations, with a slightly softer reading of 0.5%, versus the median expectation of 0.6%. The economic growth for the UK economy has become sluggish, during the worst period of the economic crisis, GDP contracted by 6.0% (Q1 2008 – Q2 2009).
In the last MPC minutes, all 9 participants voted to leave interest rates unchanged in a 9-0 consensus. The latest economic data gives the MPC members time to consider when to tighten policy, with expectations for the first interest rate rise still expected Q1/2 2016.
One of the most concerning parts of the data release was the disappointing construction data. Construction output decreased by 1.8% in Q4, compared with Q3, this contributed -0.11 percentage points to GDP growth.
In the FX market Sterling was offered, with cable trading slightly lower on the release of the GDP figures to a session low of 1.5058. Weaker economic data adds to sentiment that the BoE MPC won’t raise rates in the short term and is a negative for the currency versus the USD.
Sterling has continued to strengthen against the Euro following Draghi’s announcement of further QE from the ECB. EURGBP is now trading around the 0.75 figure, following the trend lower throughout 2014.
At the time of release;
Link to the full ONS release: http://www.ons.gov.uk/ons/dcp171778_392909.pdf
Today marks 100 days until the UK general election, political rhetoric should step up in the coming weeks, as parties outline policies for the next term and attempt to rally support. At current the government is a coalition between the Conservative party and the Liberal Democrats. Opinion polls as to the likely outcome should begin to drive GBP.