UK GDP Report Brings Positive News

ForexNewsNow | Published on October 26, 2010 at 10:09 am

UK flagNEW YORK (Forex News Now) – Today, the British Office for National Statistics released a report stating that the British economy expanded by 0.8% in the third quarter – providing surprising intraday analysis for the British GDP that defied expectations for lower results.

Previously, experts predicted that the British economy would grow only by 0.4%.  Instead, the economy increased by 2.8% year-on-year from 3Q09.

The YoY growth rate for the third quarter of 2010 was the highest rate witnessed since 3Q07, and is up considerably from the 1.2% rate in the second quarter.

The pound benefited significantly from the positive news, gaining as much as 1% against the dollar before dipping back slightly to a still-formidable 0.65%, to $1.5834.  The pound also advanced against the euro, moving up 1.3% to 0.876.

The pound also advanced 1.31% against the yen, to 128.72, and picked up 1.8% against the Swiss franc, to 1.5536.

Pound-centric investors have been worried that the Bank of England would deem it necessary to engage in further monetary easing ahead of today’s report.  The better-than-expected news, though, coupled with Standard & Poor’s decision to revise its outlook on Britain’s credit rating to stable from negative, has possibly forestalled a decision on further stimulatory policies from the central bank.

Britain still has to contend with an austerity plan that will reduce spending by more than 80 billion pounds ($126 billion) through 2014.  Part of the austerity plan calls for as many as 500,000 public sector jobs to be cut from the economy, which could have a negative effect on continued economic growth and, by association, the pound.

Investors cheered by the growth in the pound witnessed today in intraday analysis still have reason to worry. Howard Archer, the chief U.K. economist at HIS Global Insight, predicted that the economy will slow to a 0.4% growth rate for the next quarter as the economy feels the pinch of tight credit and more fiscal and monetary tightening.

For the time being, though, the pound should benefit from positive economic data, particularly against the dollar and its upcoming bout with quantitative easing.

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