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UK Q1 GDP Left Unrevised but Breakdown Shows Cause for Concern; Pound Remains Pressured

UK Q1 GDP Left Unrevised but Breakdown Shows Cause for Concern; Pound Remains Pressured

2011-05-25 09:02:00
Jonathan Granby,
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The Office for National Statistics confirmed the preliminary reading for Q1 UK GDP at 0.5% quarter-on-quarter and 1.8% year-on-year, matching consensus expectations but defying pre-release rumours for a weaker reading of 0.4% and 1.7% respectively. Along with the confirmation the ONS released the initial breakdown and things don’t read well. Business investment led the declines slumping a whopping 7.1% q/q closely followed by gross capital formation which dipped 4.4% and private consumption contracted by 0.6%.

The few rays of light to speak of came from decent exports (3.7% expansion) and the index of services, which was also released, came in slightly better than forecast. In short, the Q1 GDP number looks slightly better than the breakdown suggests it should be but risks are skewed to the downside in coming quarters and we expect growth to remain tepid. Next week’s PMIs will give us some insight as to how Q2 is shaping up.

UK_GDP_body_gbp.png, UK Q1 GDP Left Unrevised but Breakdown Shows Cause for Concern; Pound Remains Pressured

The pound lost around 20-ticks upon the release as the weaker than expected breakdown spooked some but the as expected GDP reading gave comfort to others, who were expecting downward revisions, and on the whole the pound was little moved. Gbp/Usd looks all but set to test the psychological 1.6000 once it closes below the 100-day SMA. We favour a weaker pound in coming days and weeks as growth in the UK remains weak, calls for interest rate action wanes and the US dollar continues to recover, selling into rallies is the preferred strategy.

Written by Jonathan Granby, DailyFX Research Team

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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